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THE  DANGERS  OF 
MUNICIPAL  OWNERSHIP 


THE  DANGERS  OF 
MUNICIPAL  OWNERSHIP 

ROBEKT  p5 PORTER 

DIRECTOR  OF   ELEVENTH   U.  S.  CENSUS 

AUTHOR  OF   "commerce  AND   INDUSTRY  OF  JAPAN" 

"industrial  CUBA,"  ETC. 


NEW  YORK 

THE  CENTURY  CO. 

1907 


Copyright,  1907,  by 
The  Century  Co. 


Published,  January,  1907 


THE  DE  VINNE  PRESS 


PREFACE 

This  book  discusses  a  question  of  great  public 
concern  on  both  sides  of  the  Atlantic.  Its  aim  is 
to  give  a  brief  history  of  Municipal  Ownership 
(or  Trading)  in  Great  Britain,  and  to  set  out  cer- 
tain serious  aspects  of  the  municipal  position  in 
that  country  which  have  arisen  consequent  upon 
an  indiscriminate  pursuit  of  the  system,  with  a 
view  of  indicating  the  probable  effect  of  the  ex- 
tension of  a  similar  method  of  conducting  public 
utilities  in  the  United  States.  This  method  is  gen- 
erally known  in  England  as  Municipal  Trading 
and  throughout  this  volume  the  two  terms  Munici- 
pal Ownership  and  Municipal  Trading  should  be 
understood  to  mean  one  and  the  same  thing. 

It  has  been  recognized  by  thoughtful  men  that 
an  attempt  should  be  made  to  bring  together,  in 
a  volume  not  too  expansive  or  profound  for  popu- 
lar reading,  some  of  the  facts  and  arguments  used 
by  the  opponents  of  Municipal  Trading  in  Eng- 
land. In  the  present  volume  the  writer  has  en- 
deavored to  meet  this  desire,  particularly  for  the 


PREFACE 

benefit  of  the  man  who  would  really  study  the  sub- 
ject, but  who  otherwise  has  no  alternative  but  to 
seek  his  information  in  numerous  scattered  reports, 
debates,  addresses,  and  in  articles  in  periodicals 
and  newspapers,— many  of  them  extremely  able, 
all  of  them  not  easy  of  access  except  at  date  of 
publication,  and  none  of  them  complete  in  them- 
selves. He  can,  however,  readily  obtain  the  litera- 
ture in  favor  of  Municipal  Ownership,  which  has 
assumed  considerable  proportions  of  late  years, 
and  is  distributed  far  and  wide.  More  than  that, 
every  facility  is  afforded  the  student  of  Munici- 
pal Government  by  local  authorities  in  Great  Brit- 
ain in  order  that  their  trading  policy  may  be  pre- 
sented to  him  in  the  best  possible  light.  But 
the  defects  of  the  system,  on  the  other  hand, 
can  only  be  found  after  diligent  search  in  an 
infinite  variety  of  sources.  Hence  the  favorable 
impressions  which  some  American  writers  have 
obtained  of  Municipal  Trading  in  Great  Britain 
may  be  accounted  for  by  the  fact  that— knowing 
little  or  nothing  to  the  contrary— they  are  apt 
to  be  influenced  by  the  persuasiveness  of  the  local 
councilors  and  oflBcials  under  whose  chaperonage 

they  visit  municipal  works,  and  whose  glowing  ac- 

vi 


PREFACE 

counts  of  the  undertakings  tend  to  make  ready 
converts.  The  case  against  the  trading  policy  is 
less  easily  ascertained.  That  can  be  best  sub- 
mitted by  the  business  man ;  but  he  does  not  gen- 
erally ventilate  his  objections,  nor  is  he  usually 
available  for  interviews,  having  his  own  affairs 
to  attend  to.  Not  so  the  municipal  councilor  or 
official,  who  is  always  at  hand,  for— thrown  on  his 
defense  by  the  force  of  objections  to  the  system- 
it  is  his  paramount  concern  to  justify  his  own 
works  to  all  and  sundry.  The  object  of  this  book, 
therefore,  is  to  set  forth  what  the  business  man 
and  the  municipal  official  are  alike  silent  upon— 
the  one  because  he  has  other  things  to  do,  the 
other  for  obvious  reasons— namely,  the  inherent 
defects  of  the  whole  principle  of  public  trading. 
The  subject-matter  of  the  chapters  following 
has  been  mainly  based  upon  lectures  and  addresses 
delivered  by  the  author  before  various  bodies— 
the  British  Association,  the  British  Society  of 
Arts,  the  London  School  of  Economics  (in  con- 
nection with  the  University  of  London),  and  the 
London  Chamber  of  Commerce,  as  well  as  upon 
contributions  to  several  American  periodicals. 
In  the  general  design  of  the  work,  an  attempt  is 

vii 


PREFACE 

made  to  show,  in  consecutive  order:  (1)  Trading 
as  an  undesirable  element  in  State  and  local  gov- 
ernment, and  as  a  menace  to  progress  and  to  so- 
ciety; (2)  its  financial  unsoundness;  and  (3)  that 
an  examination  of  specific  public  undertakings 
supports  the  general  argument. 

The  facts  embraced  within  these  broad  divisions 
of  the  subject  undoubtedly  point  to  the  dangers 
of  governmental  (State  or  municipal)  interfer- 
ence with  industrial  development,  and  in  the  usur- 
pation by  public  authorities  of  functions  which 
are  better  left  to  private  companies  and  individ- 
ual enterprise.  After  reading  the  evidence  pre- 
sented, few  will  continue  to  regard  the  experiments 
in  Municipal  Trading  in  Great  Britain  as  so  sat- 
isfactory as  some  of  its  more  enthusiastic  advo- 
cates have  claimed.  But  if,  with  these  facts  be- 
fore him,  the  citizen  who  really  has  the  interest  of 
his  country  at  heart  still  desires  the  extension  of 
the  system  to  American  municipalities,  with  all 
the  attending  disasters,  he  will  at  least  enter  upon 
the  experiment  with  his  eyes  open,  and  will  have 
no  further  ground  for  being  misled  by  the  conten- 
tion so  strenuously  promulgated,  that  in  the 
mother  country  Municipal  Trading  has  been  an 
unqualified  success. 

viii 


PREFACE 

On  the  contrary,  he  will  be  aware  of  a  condi- 
tion of  things  which  Mr.  Dixon  H.  Davies,  to  whom 
proofs  of  the  book  were  submitted,  so  admirably 
epitomizes  in  a  letter  to  the  author  that  his  words 
may  be  quoted  here  as  serving  for  a  comprehen- 
sive synopsis  of  the  book : 

''The  fact  is,"  writes  Mr.  Davies,  ''that  sup- 
porters of  the  trading  policy  in  Great  Britain 
have  forsaken  the  standard  of  industrial  and 
financial  success,  and  have  adopted  instead  the 
shelter  of  legalized  monopoly  and  compulsory  sub- 
sidy. They  have  forsaken  the  service  of  the  pub- 
lic at  large,  and  are  catering  for  any  section  of 
the  community,  however  small,  who  may  have  in- 
fluence enough  to  help  themselves  to  a  facility  such 
as  telephones,  or  parcels  carriage,  or  hydraulic 
power,  by  the  aid  of  the  public  purse.  They  have 
forsaken  the  idea  of  democracy;  their  funds  are 
largely  derived  by  taxing  those  who  are  not  repre- 
sented, for  in  many  cases  the  larger  portion  of  the 
assessable  property  is  owned  by  companies  and 
others  who  have  no  votes  at  all.  They  have 
thrown  overboard  the  standard  of  justice,  for 
there  is  no  justice  in  raising  a  large  sum  by  tax- 
ing, for  instance,  railway  property  in  order  to  es- 
tablish a  carrying  business  which  can  have  no  pur- 

ix 


PREFACE 

pose  except  to  reduce  the  just  railway  earnings. 
They  have  forsaken  the  idea  of  local  self-govern- 
ment, for  there  is  nothing  local  in  the  bureaucratic 
ring  which  whips  the  member  for  a  Scotch  borough 
to  vote  against  an  electric-power  scheme  for  Ire- 
land. There  is  nothing  autonomous  in  placing 
the  community  in  bonds  of  debt  to  outside  capital- 
ists who  are  placed  in  the  position  to  dictate  the 
raising  of  rates  in  the  borough  for  generations 
ahead.  They  have  raised  the  cost  of  all  produc- 
tion by  depriving  the  industries  of  cheap  power 
facilities  which,  but  for  their  interference,  they 
would  long  ago  have  had.  They  have  raised  rents 
by  discouraging  the  building  of  working-class 
houses  by  private  persons  who  hesitate  to  com- 
pete with  the  rate-provided  houses  of  the  munici- 
pality. They  have  lowered  wages  by  draining 
the  capital  resources  of  the  country  into  borough 
treasuries,  thus  both  diminishing  employment  by 
creating  an  artificial  scarcity  of  capital  in  the  in- 
dustries, and  reducing  the  share  of  labor  by  in- 
creasing the  price  of  money.  They  have  de- 
stroyed the  independence  of  thousands  of  workers 
by  turning  them  into  municipal  officials.  They 
have  lowered  the  function  of  the  capitalists  by  re- 


PREFACE 

lieving  him  of  responsibility,  and  consequently  of 
the  necessity  for  bold  and  shrewd  adventure. 
Finally,  they  have  abandoned  the  idea  of  the 
greatest  good  of  the  greatest  number  and  zeal- 
ously promoted  the  greatest  good  of  the  money- 
lender. ' ' 

It  is  a  pleasure  to  acknowledge  the  cordial  help 
afforded  by  authorities  on  the  subject  both  in 
Great  Britain  and  on  the  Continent.  In  this  con- 
nection it  may  be  mentioned  that  the  writer  has 
had  the  advantage  of  studying  the  official,  techni- 
cal and  legal  sides  of  the  question  in  investigations 
made  at  various  times  for  several  large  under- 
takings in  the  United  States  engaged  in  street- 
railway,  gas  and  electric-lighting  operations. 
These  inquiries  were  made  for  the  purpose  of  as- 
certaining the  exact  relations  between  such  public 
utilities  and  the  municipal  authorities  in  many  of 
the  principal  cities  of  Europe,  and  upon  the  data 
obtained  in  some  of  these  investigations  the  con- 
clusions hereinafter  set  forth  have  been  in  part 
based. 

E.  P.  P. 

The  Three  Gables, 

Banbury  Boad,  Oxford,  January  1,  1907. 


zi 


CONTENTS 


PAGE 


I  Municipal  Ownership  as  a  Public  Question   .      3 

n  The  General  Case  Against  Municipal  Owner- 
ship   26 

m  The  Destruction  of  Individuality — Russia  as 

AN  Object  Lesson 53 

IV  The  Effect  of  the  Public  Works  Policy  op 

AUSTRALASL^ 67 

V  Reflections  of  Other  Minds 91 

VI  A  Power  to  be  Reckoned  With 104 

vn  The  Personnel  of  British  Local  Authorities  119 

vm  The  Burden  of  Ownership  Obligations     .    .  135 

IX  The  World's  Greatest  Spendthrift  ....  158 

X  Solvency  op  Cities 190 

XI  Delusive  Demonstrations  op  Profits    .    .    .  207 

xn  The  Street  Railway  Tangle 236 

xin  The  Strangling  op  the  Electrical  Ltoustry  261 

xrv  Failure  op  Telephones  under  State  or  Mu- 
nicipal Management 287 

XV  Municipal  Housing 317 

Index 351 


THE  DANGERS  OF 
MUNICIPAL  OWNERSHIP 


THE  DANGERS  OF 
MUNICIPAL  OWNERSHIP 

CHAPTER  I 

MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

Its  beginnings  in  Great  Britain  .  .  .  Not  present  in  1880  .  .  . 
Civic  enterprise  purely  Municipal  .  .  .  Vast  developments  in 
cities  in  the  United  States  about  same  period  .  .  .  Heavy  in- 
debtedness, and,  in  some  cases  "repudiation"  in  consequence 
...  As  American  cities  abandoned  Ownership  obligations,  Brit- 
ish cities  incurred  them  .  .  .  The  Socialists'  part  in  the  move- 
ment in  England  .  .  .  Opposition  of  British  press  and  public 
bodies  .  .  .  Parliamentary  Committee  on  Municipal  Trading 
.  .  .  Opposition  against  movement  organized  .  .  .  The  London 
Traffic  Commission's  view  .  .  .  Attitude  of  Eadical  Government 
.  .  .  Dr.  Albert  Shaw's  impressions  .  .  .  American  investiga- 
tions .  .  .  New  York  State  and  Massachusetts  State  Committees 
find  against  Ownership  .  .  .  Chicago  municipality  and  the  street 
railways  .  .  .  National  Civic  Federation's  investigation  .  .  . 
New  York  governorship  election  .  .  .  The  restraint  on  American 
cities,  limiting  their  debt  obligations,  prevents  extension  of 
Ownership  policy. 

THE  extension  of  the  functions  of  municipal 
government  in  the  acquisition  and  operation 
of  commercial  undertakings  is  just  now  attract- 
ing considerable  public  attention,  both  in  Great 
Britain  and  America.  This  form  of  expansion 
may  aptly  be  termed  an  exotic,  in  that  it  has  no 

3 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

proper  relationship  to  the  duties  for  the  perform- 
ance of  which  governing  bodies  were  expressly 
created.  On  the  plea  that  certain  business  enter- 
prises are  public  utilities,  and  as  such  should  be 
publicly  owned  and  managed,  municipal  authori- 
ties have  inaugurated  a  policy  known  as  ' '  Munici- 
pal Trading"  on  one  side  of  the  Atlantic,  and 
"Municipal  Ownership"  on  the  other,  the  ten- 
dency of  which  is  being  studied  with  considerable 
interest  by  economists,  politicians,  and,  in  fact, 
by  all  concerned  in  the  prosperity  and  welfare  of 
the  two  countries. 

The  question,  by  reason  of  the  rapid  growth  of 
urban  population  during  the  last  generation,  is 
one  of  great  and  ever-increasing  magnitude,  and 
to  treat  it  as  fully  and  impartially  as  its  impor- 
tance demands  is  not  an  easy  task. 

Looking  twenty-six  years  back  (1880),  when 
the  writer  was  commissioned  by  Gen.  Francis  A. 
Walker,  the  then  director  of  the  United  States 
Census,  to  investigate  the  methods  of  municipal 
government  in  Great  Britain,  he  was  struck  with 
the  fact  that  at  that  time  this  phase  of  local 
administration  was  not  present  as  an  active  issue. 
There  was  no  swollen  municipal  debt,  nor  any  bur- 
densome taxation  to  be  attributed  to  this  cause.  The 
instructions  from  the  Census  Bureau  embraced 
an  inquiry  into  the  financial  aspects  of  British 

4 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

local  government  as  they  are  well  understood,  and 
about  anything  else  they  were  silent.  Equally 
silent  on  the  subject  was  the  purport  of  the  inter- 
views obtained  with  municipal  authorities  in  Great 
Britain ;  so  that  the  report  subsequently  made  con- 
tained no  reference  to  the  existence  of  "trading" 
in  that  country.  As  a  matter  of  history,  however, 
it  was  then  (outside  municipal  water  supply)  in  a 
chrysalis  stage,  wherein  it  more  or  less  remained 
for  quite  a  decade  before  it  emerged  as  a  conten- 
tious element  in  municipal  politics. 

In  Birmingham,  where  the  writer  called  on  Mr. 
Chamberlain,  he  was  impressed  with  the  enter- 
prise of  the  municipal  authorities.  All  manner 
of  insanitary  properties— slums  and  rookeries, 
and  congested,  badly-laid  streets  and  alleys— were 
demolished,  and,  on  the  clearances  made,  new 
thoroughfares  and  modern  tenements  and  houses 
were  built.  Similar  attention  was  given  to  a  bet- 
ter water  supply,  improved  sewerage,  and  the 
provision  of  baths,  wash-houses,  and  public  recre- 
ation grounds.  The  condition  of  other  British 
towns  at  that  time— Liverpool,  Manchester,  Leeds, 
Glasgow,  Nottingham,  Bradford,  etc.,— also  bore 
painful  witness  to  the  existence  of  the  then  com- 
mon corporate  vice  of  the  poorer  districts  being 
allowed  to  remain  a  harboring  ground  for  phys- 
ical and  moral  disease,  and  their  authorities  were 

5 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

likewise  making  creditable  efforts  to  remove  the 
reproach. 

Hence  there  could  be  nothing  but  praise  by  the 
author  in  his  report  on  returning  to  America  for 
the  direction  in  which  municipal  work  in  Great 
Britain  was  then  taking..  It  bore  a  similarity  to 
civic  enterprise  in  American  cities,  with  the  im- 
portant difference  that  while  British  cities  were 
renovating  districts,  American  cities  were  cre- 
ating new  ones.  The  latter  had  no  rookeries  to 
clear;  they  had  virgin  ground  ready  for  their 
hand,  which  spread  out  round  about  their  small 
center— generally  a  straggling  village,  soon  to  ex- 
pand to  a  considerable  city  by  rapid  stakings  out 
of  new  thoroughfares.  These  developments  pro- 
ceeded from  the  revival  of  the  country  after  the 
close  of  the  Civil  War.  But  large  and  absorbing 
as  they  were,  they  did  not  appear  to  provide  a 
sufficient  outlet  for  satisfying  new-born  civic  ener- 
gies. Nothing  would  content  the  citizens  but  the 
simultaneous  and  equally  vigorous  pursuit  of  a 
policy  which  had  not  then  appeared  on  the  munici- 
pal horizon  in  Great  Britain.  Waterworks  were 
built,  boulevards  and  parks  were  laid  out,  and 
county  and  municipal  credit  was  indiscriminately 
loaned  to  railroads.  The  consequence  of  all  this 
rash  enterprise,  undertaken  in  addition  to  the  le- 
gitimate work  of  laying  sewage  systems  and  ne- 

6 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

cessary  new  streets  that  never  existed  before,  was 
soon  manifest.  There  grew  an  accumulation  of  in- 
debtedness which  almost  made  the  taxpayers  bank- 
rupt. Some  counties  could  only  rescue  themselves 
from  such  a  plight  by  a  resort  to  the  expedient  of 
"repudiation,"  that  is,  they  boldly  defaulted. 
British  municipalities,  on  the  other  hand,  had 
confined  their  policy  of  reform  to  street  improve- 
ments and  to  sanitary  amelioration  by  the  clear- 
ance of  unhealthy  areas.  Thus  they  had  not  to 
face  such  an  ignominious  incident  in  the  pursuit 
of  their  fiscal  program,  though  the  earnest  way 
in  which  they  have  since  followed  the  example  of 
American  cities  and  counties  in  this  and  other 
directions  can  only  mean  that  the  future  has  a  sim- 
ilar fate  in  store  for  them. 

From  the  foregoing,  therefore,  it  will  be  seen 
that  municipal  enterprise  of  American  and  Brit- 
ish cities  at  that  time  fundamentally  differed ;  on 
the  one  hand,  the  former  were  nearly  ruined  by 
pushing  their  activities  too  far  (such  as  inviting 
the  railways  to  come  to  them  by  paying  them 
large  sums  as  subsidies  and  by  endorsing  their 
bonds),  whilst  on  the  other,  the  latter  had  kept 
their  policy  of  civic  development  within  bounds. 

The  consequences  to  American  cities  of  reck- 
lessly following  a  policy  of  acquisition,  and  of 
loaning  their  credit  to  private  enterprise,  was  so 

7 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

disastrous  that  they  made  a  volte  face,  and,  until 
recently,  have  kept  municipal  ownership  and  oper- 
ation at  arm's  length.  The  wisdom  of  this  deter- 
mination was  soon  reflected  in  the  marked  reduc- 
tion of  their  debts  and  taxation  which  followed. 
But  just  as  American  cities  relinquished  the  trad- 
ing field  to  its  rightful  exploiters— private  enter- 
prise—British cities  appear  to  have  entered  it. 
Whilst,  as  we  have  seen,  little  trace  of  the  exist- 
ence of  municipal  trading  in  the  form  by  which  it  is 
now  known  was  revealed  in  the  course  of  investi- 
gations made  in  Great  Britain  in  1880,  symptoms 
of  it  were  undoubtedly  vaguely  present  here  and 
there.  Glasgow  apparently  had  early  coquetted 
with  the  idea ;  but  the  most  concrete  form  which  its 
development  took  was  in  Birmingham,  between 
1874  and  1876,  that  is,  during  the  mayoralty  of 
Mr.  Joseph  Chamberlain,  the  inspirer  of  the  active 
municipal  life  for  which  that  city  then  and  since 
has  been  notable.  It  was,  indeed,  that  eminent 
statesman  who  secured  the  purchase  of  the  gas- 
works by  the  municipality.  A  few  years  later 
they  had  to  safeguard  their  new  property,  for  elec- 
tricity appeared  on  the  scene  as  a  rival  to  gas, 
which  brought  about  (also  through  Mr.  Chamber- 
lain's agency)  the  passing  of  the  electric  lighting 
act  of  1882.  Thus  was  begun  the  parliamentary 
protection  of  municipalities,  followed  by  other 

8 


MUNICIPAL  OWNEESHIP  AS  A  PUBLIC  QUESTION 

acts,  by  the  aid  of  which  local  authorities  have 
since  spread  out  their  monopolies  far  and  wide. 
Mr.  Chamberlain  may  therefore  be  regarded  as 
the  father  of  the  new  municipalism.  It  is  true 
that,  as  far  as  municipal  tramways  were  con- 
cerned, the  way  was  opened  for  them  by  the  tram- 
ways act  of  1870,  but  the  effect  of  its  famous  ex- 
propriation clause  was  not  generally  felt  until  the 
nineties. 

The  developments  which  followed  this  action  of 
the  Birmingham  municipality  soon  attracted  the 
attention  of  the  socialists.  The  propaganda  of 
the  Fabian  Society  (the  offspring  of  Mr.  George 
Bernard  Shaw)  had  been  spread  broadcast,  and 
there  is  no  doubt  that  it  indirectly  urged  British 
corporations  to  redeem  portions  of  their  cities 
from  the  stigma  of  remaining  blots  on  the  face  of 
the  civilized  world.  The  success  which  attended 
the  praiseworthy  efforts  of  the  Fabians  in  this 
direction  encouraged  them  to  look  to  the  muni- 
cipalities for  the  realization  of  their  desires, 
especially  when  they  discovered  the  existence 
of  municipal  ambitions  which  more  or  less  fell  into 
line  with  their  principles.  Like  their  confreres 
in  Germany  and  elsewhere,  the  socialists  sought 
the  firmest  platform  from  which  to  propagate 
their  views.  They  made  no  impression  upon  par- 
liamentary constituents ;  their  candidates  cut  poor 

9 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

figures  at  elections  everywhere.  At  that  time, 
therefore,  they  abandoned  Parliament  as  the  arena 
in  which  they  could  promulgate  their  coUectivist 
theories  with  any  effect.  They  saw  they  could  enter 
their  wedge  with  greater  ease  through  the  munici- 
palities—who, by  the  way,  appear  to  be  strangely 
blind  to  the  stimulus  the  spread  of  socialistic  doc- 
trines had  on  the  inception  of  their  policy.  Mu- 
nicipal trading  candidates— model  conservatives 
in  politics  many  of  them— have  secured  election 
through  the  votes  of  electors  who  were  won  over 
to  socialism  by  the  attractive  pictures  presented 
to  them  of  all  property  becoming  vested  in  the 
people,  of  which  municipal  institutions  was  a  fore- 
taste. So  that,  to  the  extent  to  which  there  was 
any  active  campaign  in  favor  of  the  new  municipal 
policy,  it  came  from  the  socialists.  When  ''The 
Times,"  a  few  years  later  (1902),  in  the  series  of 
articles  it  published  on  the  question,  recognized 
that  the  aims  of  the  municipalities  and  the  social- 
ists were  identical,  and  boldly  christened  the  whole 
movement  as  ''Municipal  Socialism"  pure  and 
simple,  it  brought  forth  angry  protests  from  the 
municipalities;  but  the  designation  was  none  the 
less  true. 

Before  "The  Times"  called  attention  to  the 
dangerous  spread  of  municipal  socialism  with 
such  telling  effect,  other  writers,  with  the  same 

10 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

object,  had  been  drawn  to  the  question.  In  fact, 
the  considerable  literature  which  now  exists  on 
municipal  trading  really  began  to  grow  at  the  close 
of  the  eighties.  During  this  period  the  movement 
appeared  to  have  quietly  developed  without  pub- 
licists discovering  what  it  really  meant.  But  its 
extent  and  ramifications  duly  indicated  the  anti- 
social courses  whither  it  led  all  too  clearly;  and 
in  1899  it  fell  to  Mr.  Dixon  H.  Davies,  of  the 
Chesterfield  Chamber  of  Commerce  (now  solicitor 
to  the  Great  Central  Railway  Company)  to  sound 
the  alarm  in  a  paper  he  read  before  the  Society 
of  Arts,  with  the  then  attorney  general.  Sir  Rich- 
ard Webster,  M.  P.  (now  Lord  Alver stone.  Lord 
Chief  Justice  of  England)  in  the  chair.  More- 
over, public  opinion  in  the  metropolis  about  this 
time  revolted  against  the  extravagant  policy  of 
the  London  County  Council.  The  electorate,  how- 
ever, had  to  wait  for  the  polls  of  1895  before  they 
could  express  their  disapproval,  when  they  de- 
prived the  progressive  party  of  their  majority. 
The  lavish  policy  of  the  London  County  Council  at 
this  period  really  gave  the  impetus  to  coordi- 
nating an  unorganized  disapproval  of  municipal 
trading  into  a  strong  body  of  opposition.  The 
London  Chamber  of  Commerce,  long  before  this, 
had  formed  a  Municipal  Trading  Committee,  and 
had  risked  a  battle  with  the  municipal  traders  in 

11 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

forcing  the  matter  on  the  attention  of  Parliament. 
In  this  they  succeeded  in  1900,  when  the  serious 
increase  in  local  indebtedness,  taxation  and  as- 
sessments, directly  traceable  to  the  municipali- 
ties carrying  on  industrial  undertakings  at  a  loss, 
came  before  the  House  of  Commons,  and  a  joint 
committee  of  both  houses  was  formed  to  inquire 
generally  into  the  whole  question.  The  investi- 
gation unfortunately  proved  too  extensive  and 
complex  for  this  committee  to  make  any  report 
upon  the  merits  or  otherwise  of  Municipal  Trad- 
ing. All  they  did  was  to  wind  up  their  work 
by  a  recommendation  of  reappointment  in  the  next 
session  of  Parliament.  The  close  of  the  session 
precipitated  this  abrupt  conclusion  to  the  commit- 
tee's inquiries,  and  it  was  not  reappointed  dur- 
ing the  remainder  of  that  Parliament.  A  general 
election  almost  immediately  followed.  But  as 
the  polls  did  not  alter  the  political  complexion  of 
the  new  House  of  Commons,  there  was  no  reason 
why  this  committee  should  not  have  been  at  once 
reappointed,  nor,  indeed,  why  it  did  not  reassemble 
in  the  final  session  preceding  the  dissolution  in 
1900.  It  was  generally  understood  that  the  munici- 
pal members  persuaded  the  Government  to  shelve 
the  investigation. 

Not    until    1903    did    Parliament    take    any 
further    action.     Then    another    joint    conunit- 

12 


MUNICIPAL  OWNEESHIP  AS  A  PUBLIC  QUESTION 

tee  was  appointed,  to  continue  the  inquiry 
begun  by  the  1900  committee.  But  all  they 
did  was  to  report  on  the  proper  form  in 
which  municipal  accounts  should  be  prepared  and 
published.  This  limitation  to  their  investiga- 
tions, of  course,  merely  touched  the  fringe  of  the 
question;  so  that  the  committee's  due  recommen- 
dations advocating  the  abolition  of  the  present 
system  of  municipal  audits,  and  the  appointment 
of  independent  auditors,  were  about  as  ineffective 
as  they  well  could  be.  Their  whole  deliberations, 
indeed,  were  as  abortive  as  those  of  their  prede- 
cessors. The  committee  were  apparently  con- 
scious of  the  inadequacy  of  their  labors,  for  they 
ventured  the  somewhat  colorless  opinion  that  ''it 
would  be  advisable  to  continue  investigations  into 
other  branches  of  Municipal  Trading  in  a  future 
session  of  Parliament." 

Not  Parliament,  but  the  outside  public,  acted 
upon  that  opinion.  The  subject  was  taken  up  un- 
remittingly by  public  men,  and  opposition  to 
reckless  municipal  trading  schemes  was  or- 
ganized. Following  the  appointment  of  the  first 
joint  committee,  the  press  turned  its  searchlight 
upon  the  municipalities,  notably  ''The  Times,"  by 
its  celebrated  articles  on  "Municipal  Socialism" 
before  referred  to.  A  symposium  in  the  pages  of 
"Traction  and  Transmission,"  where  a  number 

13 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

of  public  men,  qualified  to  speak  on  the  subject, 
expressed  their  views,  also  attracted  attention. 
The  preponderance  of  opinion  which  thus  found 
ventilation  through  these  and  other  public  chan- 
nels was  strongly  in  favor  of  placing  some  check 
on  municipal  aggrandizement. 

The  friction  with  private  enterprise  became  so 
marked  that  in  1902  the  Industrial  Freedom 
League,  **an  association  formed  to  free  private 
enterprise  from  undue  interference  and  from  rate- 
aided  competition, ' '  was  established,  and  has 
since  carried  on  an  active  propaganda  through- 
out the  country.  The  League  is  consequently  the 
target  of  constant  bitter  attacks  by  the  munici- 
pal organs.  In  the  metropolis,  what  may  be 
termed  the  ''unsteadiness"  of  the  London  County 
and  Borough  Councils  alike  also  called  forth  a 
similar  campaign  from  a  long-established  associ- 
ation—the London  Municipal  Society.  This  body 
was  compelled  to  exercise  a  vigilance  regarding 
the  expenditure  of  public  money  beyond  the  ob- 
ject for  which  it  was  originally  formed,  which  had 
wholly  to  do  with  safeguarding  the  ratepayer's 
interests  in  ordinary  municipal  administration. 
Though  these  two  organizations  do  not  succeed 
in  thwarting  municipal  socialistic  schemes,  they 
at  least  force  local  authorities  to  tread  their  way 
with  more  wariness  than  they  would  show  were 

14 


MUNICIPAL  OWNEESHIP  AS  A  PUBLIC  QUESTION 

such  antagonism  not  marshaled  against  them. 
More  than  that,  their  campaign  had  the  effect  of 
stimulating  the  municipal  party  to  form  the 
Association  of  Municipal  Corporations  and  Town 
Clerks— now  a  very  powerful  body.  Their  coer- 
cion of  members  of  Parliament  to  vote  against 
private  schemes  which  may  adversely  affect  mu- 
nicipal monopolies  is  notorious.  Such  influence 
could  only  be  wielded  by  the  Association  first 
winning  over  to  their  banner  that  large  unstable 
class  of  the  electorate  (including  municipal  em- 
ployes) whose  political  opinions  are  nebulous,  and 
who  are  easily  impressed  with  official  municipal 
utterances.  With  this  voting  power  at  their 
back,  they  have  only  to  indicate  to  a  member  that 
his  seat  will  be  in  jeopardy  at  the  next  election  if 
he  does  not  heed  their  bidding. 

The  heightened  hostility  thus  engendered  be- 
tween municipalities  and  private  traders,  added 
to  the  unjust  treatment  and  repressive  measures 
which  the  latter  had  to  suffer,  more  particularly 
in  relation  to  tramway  extensions,  attracted  at- 
tention from  another  quarter.  This  was  the 
Royal  Commission  on  London  Traffic,  who  made 
some  observations  in  the  first  volume  of  their 
report  issued  in  1905,  which  bear  repetition.  In 
contrast  with  the  British  ownership  system,  they 
favorably  viewed  the  method  under  which  the 

16 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

street  railways  of  New  York  and  Boston  were 
built.  In  their  case  the  operating  companies  ob- 
tained the  necessary  capital  for  construction  from 
the  respective  municipalities  at  a  higher  rate  of 
interest  than  that  at  which  the  latter  raised  the 
necessary  loans  for  the  purpose  on  the  credit  of 
the  cities.  The  difference  between  the  rate  of  in- 
terest paid  to  the  bondholders  by  the  cities  and 
that  paid  by  the  contracting  companies  to  the 
cities  enable  the  debt  created  on  account  of  street 
railway  construction  to  be  paid  off  by  the  expira- 
tion of  the  franchise,  when  the  tracks  and  road- 
bed (but  not  the  equipment)  come  into  the  hands 
of  the  cities  practically  free  of  cost.  The  compa- 
nies meantime  undertake  all  risks  attending  the 
construction  of  the  lines  and  of  operation,  etc. 
Though  the  question  of  municipal  ownership  was 
not  a  part  of  their  instruction,  the  London  Trafl&c 
Commission  expressed  the  opinion  that  the  re- 
lations existing  between  the  municipalities  and 
private  enterprise  demanded  inquiry. 

But  it  would  seem  from  the  present  outlook  for 
Municipal  Trading,  that,  as  far  as  Parliament  is 
concerned,  it  will  proceed  on  its  way  unchecked. 
Such  at  least  is  to  be  gathered  from  the  declara- 
tions of  at  least  two  members  of  the  Cabinet,  the 
prime  minister  (Sir  H.  Campbell-Bannerman) 
and  the  president  of  the  Local  Government  Board 

16 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

(Mr.  John  Burns),  taken  in  conjunction  with  the 
fact  that  the  Government  majority  are  prepared 
to  vote  for  any  legislation  the  purpose  of  which 
is  to  give  the  municipalities  more  and  more  free- 
dom of  action.  On  the  other  hand,  it  is  by  no 
means  certain  that  the  sympathies  of  the  prime 
minister  and  Mr.  Burns  with  municipal  ambitions 
are  shared  by  their  colleagues  in  the  Cabinet. 
British  private  enterprise,  therefore,  has  reason 
to  hope  that  a  common  defect  of  Radical  Govern- 
ments—a lack  of  solidarity— will  stand  in  the  way 
of  the  municipalities  obtaining  from  Parliament 
all  the  further  powers  they  desire. 

So  far  we  have  briefly  traced  the  modem  ten- 
dencies of  the  movement  in  both  countries  cor- 
relatively,  because  its  progress  in  Great  Britain 
has  already  attracted  public  attention  in  the 
United  States  and  has  more  or  less  set  the  pace 
for  the  latter  country.  For  this  reason  it  will  be 
convenient  now  to  proceed  to  survey,  in  the  same 
relation,  the  stages  through  which  the  question  has 
passed  as  a  debatable  proposition  in  the  United 
States. 

The  growth  of  the  movement  in  Great  Britain 
in  the  eighties  drew  Dr.  Albert  Shaw,  now  editor 
of  the  ''American  Review  of  Reviews,'*  and  then 
attached  to  a  Minneapolis  journal,  to  that  coun- 
try, and  he  wrote  a  series  of  letters  on  the  sub- 

2  17 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

ject  which  were  published  in  *  *  The  Century  Maga- 
zine," and  afterwards  in  book-form.  His  work 
was  the  forerunner  of  the  miscellaneous  litera- 
ture which  has  since  appeared  in  America  on  the 
subject.  At  that  period,  Dr.  Shaw  saw  what  I 
saw  and  have  acknowledged,  and  what  impartial 
critics  (with  whom  he  must  be  ranked)  will  admit 
—that  the  best  side  of  municipal  enterprise  in 
Great  Britain  was  then  to  be  seen.  That  cannot 
be  said  now.  Indeed,  it  is  probable  that  were  Dr. 
Shaw  to  visit  Great  Britain  with  a  like  purpose 
at  the  present  time,  he  would  have  grounds  for  re- 
vising some  of  his  early  statements  made  in  ap- 
proval of  municipal  work  in  England.  But  time 
has  left  unaltered  one  important  consideration 
which  even  then  could  not  escape  that  brilliant 
publicist,  namely,  that  comparisons  between  Eu- 
ropean and  American  cities  for  the  purpose  of 
elucidating  municipal  problems  were  of  little 
value.     The  fact  remains  true  to-day. 

However  favorably  municipal  work  had  im- 
pressed Dr.  Shaw  in  England,  it  did  not  convert 
him  to  an  advocacy  of  Municipal  Ownership  for 
New  York.  Before  a  committee  formed  by  the 
legislature  of  that  state  on  Municipal  Ownership, 
he  testified  that  he  had  never  thought  of  owner- 
ship as  a  remedy.  Dr.  Shaw's  views  then  are  to  be 
emphasized  to  show  that  an  approval  of  English 

18 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

municipal  methods  of  trading  does  not  induce  a 
man,  broad-minded  enough  to  grasp  the  points 
of  difference  in  the  local  government  administra- 
tion of  the  two  countries,  to  recommend  their 
adoption  by  American  cities. 

The  New  York  committee  referred  to  seemed  to 
have  had  no  difficulty  in  coming  to  a  conclusion 
upon  the  question  they  had  been  formed  to  in- 
vestigate. Here  is  a  portion  of  the  text  of  the 
final  paragraph  of  their  report : 

"As  an  abstract  proposition,  we  believe  that 
no  government,  either  national,  state  or  municipal, 
should  embark  in  a  business  that  can  be  as  well 
conducted  by  private  enterprise.  The  reverse  of 
this  proposition,  carried  out  to  logical  conclu- 
sions, would  put  all  business  enterprises  under 
governmental  management  and  control,  and  leave 
to  no  citizen  any  hope,  ambition,  or  aspiration  be- 
yond that  of  seeking  an  official  position  that  af- 
fords a  meager  existence.*' 

It  may  be  that  this  conclusion  had  the  effect  of 
silencing  for  some  time  the  agitation  for  the  pro- 
motion of  the  ownership  and  operation  of  public 
utilities  in  the  United  States ;  at  any  rate,  in  that 
country,  as  in  England,  the  question  smouldered 
for  nearly  a  decade. 

The  year  of  1897  found  the  state  of  Massachu- 
setts seeking  information  with  regard  to  the  re- 

19 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

lations  of  cities  and  towns  with  street  railway 
companies.  The  question  had  been  raised  in  that 
state  as  to  the  desirability  of  the  companies  pay- 
ing a  special  franchise  tax  or  a  fixed  rental  to  the 
municipalities,  in  addition  to  the  ordinary  tax 
levy.  A  committee  was  appointed  by  Governor 
Wolcott,  and  it  was  the  writer's  privilege  to  lay 
before  them  the  result  of  the  further  inquiries 
made  in  1897  into  the  position  of  the  munici- 
pal tramway  systems  of  Great  Britain.  The 
writer's  testimony  was  to  the  effect  that  the  re- 
sults of  such  working  were  not  to  be  accepted  as 
a  guide  for  other  countries  to  follow,  and  this,  no 
doubt,  led  the  Massachusetts  committee  to  con- 
clusions which,  in  effect,  were  similar  to  those  of 
the  New  York  committee.  At  any  rate,  they  held 
that  neither  partial  municipalization  (ownership 
but  not  operation)  nor  complete  municipalization 
(ownership  and  operation)  of  the  street  railways  of 
Massachusetts  was  desirable  in  the  uncertain  ex- 
perimental stage  municipal  control  of  such  utili- 
ties had  then  reached ;  nor  could  they  recommend 
that  the  state  laws  should  be  amended  by  which 
a  special  franchise  tax  should  be  exacted  from  the 
companies  in  addition  to  the  ordinary  taxes  levied 
on  the  assessment  value  of  their  properties.  They 
deemed  the  existing  system  in  Massachusetts  sat- 
isfactory. 

20 


MUNICIPAL  OWNEESHIP  AS  A  PUBLIC  QUESTION 

We  must  turn  to  Chicago  for  the  next  important 
development  of  the  movement  in  the  United  States, 
which  brings  us  to  the  spring  of  1905,  when  the  cit- 
izens at  the  municipal  election  declared  in  favor  of 
the  complete  municipalization  of  the  street  rail- 
ways. The  mayor-elect,  jubilant  over  this  ex- 
pression of  the  popular  will,  cabled  to  Mr.  Dal- 
rymple  the  general  manager  of  the  Glasgow  mu- 
nicipal tramways,  to  come  to  Chicago  to  confer 
with  him  as  to  the  best  means  of  carrying  out  the 
voters'  mandate.  The  invitation  was  accepted; 
but  Mr.  Dalrymple,  though  committed  to  munici- 
pal ownership  by  the  nature  of  his  employment, 
gave  up  the  task  of  adviser,  declaring  in  effect 
that  what  was  possible  and  successful  in  Glasgow 
was  not  feasible  in  Chicago.  Here  we  have  a 
striking  confirmation  of  the  point  mentioned 
regarding  the  uselessness  of  successful  English  ex- 
perience as  a  guide  to  American  cities.  Perhaps  the 
futility  of  the  consultations  with  Mr.  Dalrymple 
had  made  some  impression  on  the  minds  of  the 
citizens.  Certainly  the  result  of  the  referendum 
to  the  Chicago  citizens  submitted  twelve  months 
later  (in  April  of  1906)  showed  that  they  were  not 
wholly  of  the  same  mind  as  in  1905.  Three  propo- 
sitions were  put  before  them:  (1)  to  sanction 
the  borrowing  of  $75,000,000  for  the  purchase, 
construction  and  equipment  of  the  street  rail- 

21 


THE  DANGEltS  OF  MUNICIPAL  OWNEESHIP 

ways;  (2)  that  the  city  proceed  without  delay 
to  operate  them,  and  (3)  that  the  city  should  not 
do  so.  A  small  majority  was  given  in  favor  of 
the  first  proposition.  Many  voters  not  sympa- 
thetic with  ownership,  it  is  said,  felt  compelled  to 
support  it  because  of  the  unsatisfactory  street  rail- 
way services  they  had  had  to  suffer  for  the  past  ten 
years.  The  second  proposition  was  defeated,  and 
the  third  carried  by  a  small  majority.  To  extri- 
cate the  meaning  hidden  in  these  results,  it  would 
seem  that  the  voting  on  the  third  proposition  did 
not  carry  any  weight,  and  is  not  binding.  Though 
the  results  show  that  Chicago  is  in  favor  of  muni- 
cipal ownership,  not  of  operation.  The  clamor, 
after  all,  ended  in  the  traction  companies  continu- 
ing to  operate  the  lines  without  city  ownership. 

The  bait  of  municipal  ownership  and  operation 
is  now  dangled  before  the  people  of  the  United 
States  in  a  way  which  wins  many  over  entirely  on 
sentimental  grounds.  They  are  not  sensible  of 
its  practical  and  economic  aspects— the  accretion 
of  indebtedness  it  involves,  the  expansion  of  the 
tax-levy  and  assessment  values  of  their  proper- 
ties, the  bureaucratic  power  of  oflScialism  it  cre- 
ates, and  the  temptation  it  offers  for  the  entry  of 
many  more  corrupting  influences  into  municipal 
work  than  those  which  unhappily  exist  already. 
For  example,  nothing,  in  my  opinion,  could  be 

22 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

more  one-sided  and  misleading  than  the  report 
on  ''Municipal  Ownership  in  Great  Britain"  by 
Dr.  F.  C.  Howe,  contained  in  the  bulletin  of  the 
Bureau  of  Labor  for  January,  1906.  Whilst  the 
question  is  undoubtedly  ripening  in  the  public 
mind  in  the  United  States,  a  true  knowledge  and 
understanding  of  its  merits  are  carefully  con- 
cealed from  the  electorate. 

A  desirable  move  in  the  direction  of  obtaining 
some  definite  information  on  the  subject  was  re- 
cently made  by  the  National  Civic  Federation 
when  they  sent  a  committee  of  delegates  to  Europe 
to  investigate  the  latest  phases  of  municipaliza- 
tion, complete  or  partial.  The  delegates  went 
over  much  the  same  ground  as  that  which  I  sur- 
veyed twenty-five  years  ago,  and  found  fully 
grown  in  many  British  cities  what  during  my 
investigations  was  then  merely  a  tendency  or  did 
not  exist  at  all.  Writing  before  their  report  has 
been  made  public,  and  without  speculating  upon 
the  nature  of  their  conclusions,  the  present  posi- 
tion warrants  the  observation^  as  much  as  it  did  a 
decade  ago,  that  however  much  the  external  attrac- 
tions of  British  municipally-owned  institutions 
may  win  the  approval  of  visitors  from  other  coun- 
tries, the  desirability  of  transplanting  those  sys- 
tems onto  American  soil  remains  as  thorny  a  ques- 
tion to  decide  as  ever.    It  is,  indeed,  evident  from 

23 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

the  failure  of  Chicago  to  obtain  guidance  from 
Glasgow  that  an  understanding  of  European 
methods  does  not  seem  helpful  to  a  settlement  of 
the  question  in  America.  The  chronology  of  events 
turning  on  the  ownership  question  closes,  as  far  as 
this  recital  is  concerned,  with  the  New  York  gov- 
ernorship election  in  November  of  1906,  which 
ended  in  the  defeat  of  Mr.  Hearst,  the  municipal 
ownership  candidate.  But  it  is  only  fair  to  say 
that  his  defeat  was  a  personal  one,  not  a  defeat 
of  the  principles  he  professed.  Indeed,  the  owner- 
ship question,  though  a  main  plank  of  the  Demo- 
cratic platform,  was  overshadowed  by  the  anti- 
trust issue,  which  in  its  turn  seemed  to  have  be- 
come lost  in  a  descent  to  mere  personalities  that 
characterized  the  conduct  of  the  campaign  as  it 
neared  its  close.  The  election,  indeed,  was  more 
a  contest  of  personalities  than  of  principles.  The 
ownership  question  was  wholly  in  the  background ; 
but  it  is  too  active  an  issue  to  remain  so  for  long, 
and  is  bound  to  revive  again  with  renewed  force. 
Probably  the  next  New  York  mayoral  election, 
if  the  candidates  nominated  conduct  their  canvass- 
ing without  the  introduction  of  personal  attacks 
on  each  other,  will  give  the  New  York  citizens  the 
opportunity  of  expressing  a  definite  opinion  on  the 
question. 

The  restraint  on  American  cities  lies  in  the 
24 


MUNICIPAL  OWNERSHIP  AS  A  PUBLIC  QUESTION 

state  constitutional  limitations  of  debt  enacted 
by  organic  law  for  the  protection  of  the  taxpayers, 
beyond  which  they  cannot  go  in  order  to  raise 
money  for  trading  purposes.  The  national  govern- 
ment, however,  has  no  control  over  them,  as  Par- 
liament has  over  British  municipalities  through 
the  Board  of  Trade  or  the  Local  Government 
Board.  General  control  over  municipalities  is 
certainly  exercised  by  the  state  legislature,  but 
the  laws  this  body  enacts  relating  to  municipal 
powers  are  not  as  a  rule  specific.  A  law  is  not 
usually  passed  which  applies  to  a  particular  city 
and  which  approves  the  spending  of  money  for  any 
specific  scheme  its  council  desires  to  undertake, 
as  is  the  case  with  British  cities  which  obtain 
Parliament's  sanction  to  their  individual  private 
bills  empowering  them  to  pursue  their  ownership 
policy.  On  the  contrary,  American  laws  embrace 
groups  of  cities  denominated  according  to  their 
populations,  but  within  the  limitation  of  the  general 
states  laws  the  cities  have  no  need  to  apply  either 
to  the  national  or  to  the  state  legislatures  for  per- 
mission to  undertake  ownership  works.  They  ob- 
tain their  mandate  solely  by  a  referendum  to  the 
citizens;  and  it  speaks  much  for  their  prudence 
that  they  have  so  little  exercised  the  option  their 
freedom  from  superior  authority  gives  them. 


25 


CHAPTER  II 

THE  GENEBAL  CASE  AGAINST  MUNICIPAL  OWNEESHIP 

Summary  of  counts  against  public  trading  .  .  .  Declared  illegal 
by  Supreme  Court  of  Massachusetts  .  .  .  Abortive  attempt  to 
municipalize  Detroit  street  railways  .  .  .  The  amendment  of 
State  Constitutions  to  enable  development  of  Ownership  a  dan- 
gerous procedure  .  .  .  Would  encourage  private  traders  to  re- 
gard sale  of  undertakings  to  cities  as  more  advantageous  than 
retaining  them  .  .  .  Temptations  arising  from  cities  becoming 
open  buyers  .  .  .  Debt  involvements  and  high  terms  of  pur- 
chase .  .  .  State  purchase  of  telegraphs  in  Great  Britain  an 
example  .  .  .  Effect  of  Municipal  policy  in  Great  Britain  .  .  . 
Cheapening  of  private  undertakings  by  threatened  expropria- 
tion, by  excessive  interference,  or  by  loose  control  .  .  .  Added  lia- 
bilities of  American  cities  outlined  if  they  extended  their  Owner- 
ship obligations  in  the  proportion  British  cities  have  done  .  .  , 
Supposed  advantages  claimed  for  Ownership  refuted  .  •  .  Field 
for  legitimate  Municipal  enterprise  extensive  enough  without 
widening  it  by  trading  .  .  .  The  primary  duty  of  a  Local  Gov- 
ernment Board  .  .  .  The  duty  of  private  traders. 

THE  position  of  Municipal  Trading  in  both 
countries,  especially  in  Great  Britain,  de- 
mands that  the  case  against  it  should  be  submit- 
ted, for  the  benefit  of  taxpayers,  as  strongly  as 
possible.  Industrial  and  commercial  speculation 
with  money  raised  by  taxation,  viewed  from  what- 
ever standpoint,  and  called  by  whatever  name  is, 
in  my  opinion,  inconsistent  with  the  sound  and 
just  principles  of  government.  Such  trading  with 
the  public  credit,  whether  state  or  municipal,  must 

26 


THE  GENEEAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

of  necessity  lead  to  stupendous  financial  liabilities, 
add  to  the  burden  of  the  rates,  weaken  municipal 
credit,  bring  about  inequality  of  taxation,  inter- 
fere with  the  natural  laws  of  trade,  check  indus- 
trial and  scientific  progress,  stop  invention,  dis- 
courage individual  effort,  destroy  foreign  trade, 
establish  an  army  of  officials,  breed  corruption, 
create  an  aristocracy  of  labor,  demoralize  the 
voter,  and  ultimately  make  socialistic  communities 
of  towns  and  cities. 

The  question  of  allocating  existing  public  funds, 
or  raising  capital  on  the  credit  of  the  city,  has 
frequently  been  the  subject  of  legal  investigation 
in  the  United  States,  and  has  been  declared  con- 
trary to  the  constitutional  laws  of  several  states, 
notably  of  Massachusetts.  Here  is  an  extract  from 
the  constitution  of  that  state :  *'In  the  government 
of  this  Commonwealth  the  legislative  department 
shall  never  exercise  the  executive  or  judiciary 
functions  or  either  of  them;  the  executive  shall 
never  exercise  the  legislative  or  judiciary  powers 
or  either  of  them ;  the  judiciary  shall  never  exer- 
cise the  legislative  or  executive  powers  or  either 
of  them,  to  the  end,  that  it  may  he  a  government 
of  laws  and  not  of  men."  Mr.  Dixon  H.  Davies^ 
has  pointed  out  that  the  Massachusetts  state  con- 

'  Before  the  British  Incorporated  Law  Society  at  Manchester, 
1906  (see  Proceedings). 

27 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

stitution  is  supposed  to  be  founded  on  English 
Common  Law.  If  that  be  so,  then  the  modern  di- 
rection of  local  legislation  in  Great  Britain— inter- 
ference with  the  private  individual  (or  "govern- 
ment of  men")— shows  that  British  municipal  au- 
thorities have  become  blind  to  the  spirit  of  the 
Common  Law  which  alone  has  made  good  govern- 
ment in  Great  Britain  possible. 

The  Supreme  Court  of  Massachusetts,  in  view 
of  the  above  clause,  has  handed  down  four  opin- 
ions adverse  to  the  whole  principle  and  policy  of 
public  trading.  The  point  raised  was  whether  a 
city  or  town  in  that  state  could,  within  its  consti- 
tutional powers,  buy  and  sell  wood  and  coal  for 
the  benefit  of  its  citizens.  To  the  several  forms 
in  which  this  question  was  presented  to  the  Court 
the  answer  was  an  emphatic  and  unconditional 
negative.  The  Court  was  divided  on  the  question 
whether,  in  a  time  of  great  emergency,  a  munici- 
pality might  be  justified  in  buying  fuel  at  whole- 
sale and  selling  it  at  retail,  even  though  such  trad- 
ing might  be  outside  its  constitutional  rights. 
Judge  Loring,  however,  was  not  content  to  leave 
the  matter  open  even  to  this  extent,  and  filed  an 
opinion  to  the  effect  that  no  emergency  can 
make  constitutional  an  unconstitutional  act.  The 
ground  the  Court  took  for  deciding  generally 
against  the  proposition  of  municipal  fuel  yards 

28 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

was  that  the  constitution  did  not  contemplate  em- 
powering municipalities  to  raise  money  by  taxa- 
tion for  commercial  purposes.  The  line  of  argu- 
ment sustains  an  obvious  interpretation  of  the 
fundamental  law  and  would  seem  to  apply  with 
equal  force  to  the  municipal  ownership  and  opera- 
tion of  street  railways,  gas-works,  and  nearly  all 
forms  of  public  utilities. 

In  the  well  known  case  of  Detroit,  it  will  be 
remembered,   the   Supreme   Court  decided  that, 
under  the  existing  constitution  of  the  state  of 
Michigan,  the  city  could  not  take  over  the  street 
railways.     State  constitutions,  it  is  true,  can  be 
altered,  and,  therefore,  to  pursue  the  argument 
that  they  afford  an  impregnable  dead  wall  to 
municipal  aspirations  invites  the  rejoinder  that 
they  are  human  enactments,  framed  to  fit  the  con- 
ditions of  a  progressive  country  like  the  United 
States,  and  as  such  can  be  made  as  rigid  or  as 
elastic  as  the  people  choose.    But  if  they  are  to  be 
regarded  as  unalterable,  like  the  laws  of  the  Medes 
and  Persians,  I  admit  that  they  tend  to  become 
(and  in  some  cases  perhaps  are)  effete,  and  an 
obstacle  to  state  progress.    The  discontent  with 
the  vetoes  and  restraints  laid  down  by  the  consti- 
tutional laws  of  many  states  no  doubt  has  its 
source  in  this  belief. 
However  just  or  otherwise  may  be  that  view, 
29 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

it  cannot  be  questioned  that  any  amendment  of 
state  constitutional  laws,  intended  to  break  down 
the  healthy  check  on  the  growth  of  municipal  debt 
and  on  the  power  of  cities  to  employ  public  funds 
beyond  the  objects  of  government,  opens  the  door 
to  the  entry  of  abuses  which  ownership  senti- 
mentalists little  realize.  In  private  hands  the 
loaves  and  fishes  are  beyond  reach ;  in  public  hands 
they  are  not.  By  such  a  change,  in  other  words, 
the  public  funds,  disbursed  by  enlightened  cities 
prepared  to  buy  anything  or  everything,  useful 
or  useless  (as  it  may  well  come  to  be)  has  to  face 
the  danger  of  being  made  the  objective  of  all  man- 
ner of  men  of  sentiment  and  men  of  straw  (con- 
vertible terms  often)  who  are  ready  to  espouse  the 
municipal  ownership  cause  solely  for  political  if 
not  for  personal  gain.  Even  to  legitimate  traders, 
the  prospect  offered  of  driving  a  good  bargain 
with  a  municipality  run  on  ownership  lines  is  cor- 
rupting. As  an  instance  of  private  traders  play- 
ing into  the  hands  of  a  municipality  for  their 
own  gain  may  be  cited  the  abortive  transac- 
tion, already  referred  to,  which  the  city 
of  Detroit  made  with  a  company,  who  sold  the 
street  railways  to  the  city  for  a  large  sum,  and 
had  to  take  them  back  on  the  finding  of  the  Su- 
preme Court  that  the  city  had  no  power  to  buy. 
Enlarged  freedom  to  American  cities  for  the 
30 


THE  GENEEAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

purpose  of  acquiring  properties  does  not,  how- 
ever, stop  at  attracting  the  wolves.  State  super- 
vision and  forced  reductions  of  fares  of  street 
railways,  and  of  gas,  electric  and  water  charges 
(where  these  utilities  are  privately  operated),  may 
force  legitimate  private  enterprise  to  a  complete 
change  of  attitude  toward  municipalities.  It 
would  be  a  case  of  ceasing  to  contest  on  an  unequal 
issue.  But  it  would  not  mean  compromise.  It 
would  rather  mean  that  the  municipalities,  in 
their  ardor  to  take  over  undertakings,  would  in- 
directly influence  private  companies  to  unload 
their  enterprises  onto  them  at  a  high  price,  rather 
than  continue  to  operate  under  restrictive  condi- 
tions which  reduced  their  profit  to  a  minimum. 
In  such  circumstances  the  position  is  conceivable 
that  it  would  be  more  advantageous  for  them  to 
sell  than  to  retain  their  properties.  In  this  way 
one  can  imagine  American  taxpayers  saddled  with 
a  heavy  weight  of  enterprises,  purchased  at  ex- 
orbitant figures  as  a  penalty  for  sanctioning  an 
alteration  in  state  constitutions  by  which  munici- 
palities are  afforded  such  a  license  to  traffic  with 
public  funds.  Private  companies,  if  they  are  not 
to  be  allowed  to  conduct  their  businesses  except 
under  vexatious  and  intolerable  conditions,  natu- 
rally will  only  consent  to  be  suppressed  by  muni- 
cipal absorption  at  a  compensation  commensurate 

31 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

with  the  value  they  place  upon  the  ultimate  capac- 
ity of  their  concerns— a  capacity  to  which  they 
are  unable  to  attain  through  such  restrictions. 

The  municipalities,  on  the  other  hand,  will  not 
be  blind  to  the  object  of  traders  who  desire  to  sell 
out.  One  can  predict  many  wranglings  as  to  the 
price  to  be  paid.  In  Great  Britain,  there  is  more 
than  one  example  of  a  municipality  emerging  con- 
siderably worsened  in  availing  itself  of  its  statu- 
tory power  to  expropriate.  The  case  of  the  elec- 
tric supply  of  Marylebone,  in  London,  is  an  illus- 
tration. Some  years  ago  the  electric  lighting  of 
the  borough  was  in  the  hands  of  a  private  com- 
pany—the Metropolitan  Electric  Supply— whom 
the  borough  authorities  approached,  under  the 
metropolitan  lighting  act  (without  giving  the  rate- 
payers an  inkling  of  their  proceedings,  and  re- 
quired the  sale  to  them  of  the  enterprise.  The 
company  offered  to  accept  the  sum  of  $4,500,000, 
but  the  municipality  demurred  to  this  figure,  went 
to  arbitration  over  the  matter,  spent  some  $300,000 
in  law  costs,  and  was  finally  called  upon  to  pay 
over  $6,000,000  to  the  company.  Here,  at  the  very 
start,  the  municipal  Council  saddled  the  rate- 
payers with  an  absolutely  unnecessary  charge  of 
$1,500,000,  on  every  cent  of  which  interest  and 
sinking  fund  charges  have  to  be  paid.  This  is  a 
case   where   British   municipalities,   in  haggling 

32 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

terms  with  private  companies,  overlook  the  un- 
pleasant fact  that  the  law,  when  requisitioned,  is 
neither  a  respecter  of  men  nor  of  municipalities. 
But  to  whitewash  their  ineptitude,  they  naively 
defend  themselves  by  saying  that  the  outgoing 
companies  have  been  *  *  generously  treated. ' '  Tax- 
payers, as  business  men,  would  probably  acknow- 
ledge that  when  the  life  of  a  business  is  cut  short 
as  it  nears  or  when  it  has  reached  its  prime,  such 
an  end  demands,  in  common  fairness,  that  munic- 
ipal expropriation  should  be  accompanied  by  ade- 
quate compensation.  But  as  that  compensation  adds 
to  their  tax-levy  and  their  assessment  by  raising 
the  local  indebtedness,  they  may  be  driven  to  shut 
their  eyes  to  the  justice  of  the  case,  and  anathema- 
tize the  evil  day  when  local  governments  became 
imbued  with  the  desire  to  do  everything  but  mind 
their  own  business. 

It  is  not  municipalities  only,  but  states  also, 
which,  once  committed  to  a  policy  of  acquisition, 
are  apt  indirectly  to  encourage  private  companies 
to  humor  such  governmental  weakness  to  the  top 
of  their  bent.  The  acquisitiveness  of  the  one  for 
private  property  fires  the  acquisitiveness  of  the 
other  for  public  cash.  The  State  purchase  of  the 
telegraphs  in  Great  Britain  in  1870,  when  an  enor- 
mous sum  was  paid  by  the  Government  to  buy  out 
the  companies,  is  an  instance  of  the  willingness  of 

8  33 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

private  enterprise  to  be  extinguished  if  the  pur- 
chaser lays  himself  open  to  accept  onerous  terms. 
The  British  Government  found  too  late  that  the 
telegraph  system  it  aspired  to  possess  was,  in  their 
hands,  clogged  at  the  start  by  annual  commitments 
in  respect  of  the  enormous  loans  they  had  to  raise 
in  order  to  effect  the  purchase,  which  year  by 
year  more  than  eat  up  the  profits  and  left  con- 
siderable deficits.  Such  is  the  case  with  the  gov- 
ernment telegraphs  of  Great  Britain.  "While  it 
is  true  that  the  institution  of  twelve-cent  (6d.) 
telegrams,  and  the  greater  use  of  the  telephone, 
in  part  account  for  the  annual  losses  their  work- 
ing shows,  the  main  cause  for  their  failure  as  a 
** reproductive  undertaking"  is  the  success  of  the 
outgoing  party  in  bleeding  the  incoming  party  to 
the  uttermost  farthing. 

If  these  instances  of  '  *  generous  treatment '  *  were 
frequent  in  Great  Britain,  it  is  not  unreasonable 
to  suppose,  as  I  have  speculated  may  yet  happen 
in  the  United  States,  that  there  would  soon  be  no 
anti-municipal  trading  party  left,  for  traders 
would  look  to  the  municipal  estate  as  the  common 
dumping  ground  for  their  property  and  effects, 
assured  in  the  belief  that  in  the  city  authorities 
they  had  a  good  customer  for  their  businesses, 
whether  the  latter  were  prosperous,  drifting  or 
insolvent.  And,  as  a  matter  of  fact,  it  is  under- 
takings which  sometimes  sail  pretty  close  to  the 

34 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

two  last-named  definitions  which  more  often  than 
not  come  into  the  municipalities'  hands.  The  fact 
that  these  undertakings  in  the  United  States  do 
not  have  limited  franchises  as  in  England,  and 
hence  are  not  obliged  to  sell  to  the  local  authori- 
ties, will  make  the  acquisition  of  such  utilities  even 
more  expensive  than  has  been  the  case  in  Great 
Britain.  One  can  imagine  the  ardor  with  which 
owners  of  depreciated  land  and  houses  in  London 
would  seize  upon  the  decision  of  the  London 
County  Council  to  buy  up  what  is  but  an  incubus 
around  their  necks.  Such  is  the  latest  demand 
which  that  municipal  whole-hogger,  Mr.  George 
Bernard  Shaw,  put  forward  in  the  ''Lon- 
don Tribune."  ''Give  the  Council  power,"  says 
he,  "to  acquire  London  land,  and  build  or  rebuild 
the  whole  metropolis,  slums  and  squares,  mews 
and  avenues,  courts  and  King's  ways  alike." 
"Yes,  give  the  Council  that  power,"  echo  these 
property  owners.  ' '  Let  others  bear  our  burdens. ' ' 
As  Mr.  Shaw  confesses  that  British  municipalities 
"are  restricted  to  the  building  jobs  which  private 
enterprise  rejects  as  not  worth  while"  (an  over- 
whelming confession,  by  the  way,  of  municipal 
failure  to  solve  the  housing  problem),  the  extent 
to  which  the  Council  would  be  loading  their  al- 
ready hampered  estate  by  such  a  purchase  of  prop- 
erty beggars  description. 
It  is  as  common,  however,  for  municipalities 

35 


THE  DANG'EES  OF  MUNICIPAL  OWNERSHIP 

to  purchase,  for  a  mere  song,  properties  which 
they  themselves  have  deliberately  helped  to 
cheapen.  To  instance  briefly  electricity  works  and 
tramways  (each  of  which  demands  a  separate 
chapter  later  on),  their  development  is  retarded 
by  the  eventual  municipal  expropriation  at  their 
bare  value,  after  a  certain  number  of  years,  a 
fate  which  hangs  over  their  heads.  Private  pro- 
moters, therefore,  are  not  encouraged  to  improve 
their  plant  or  services,  knowing  that  any  money 
so  spent  would  be  wasted,  for  at  the  close  of  their 
franchise  the  municipality  steps  in,  takes  the  con- 
cern over  as  so  much  scrap  iron,  and  the  struggles 
of  the  company  are  at  an  end.  Meantime,  the 
municipality  declaims  loudly  about  the  inefficiency 
of  the  private  working  of  the  system  in  question, 
(for  which,  as  I  have  said,  they  themselves  are 
virtually  responsible)  as  a  justification  for  their 
intervention.  It  is  not  difficult  to  accuse  a  maimed 
man  with  being  inefficient  in  the  sense  that  he  can- 
not accomplish  the  same  physical  labor  as  an  able- 
bodied  man  would;  but  who  has  less  right  to  re- 
proach him  with  his  weakness,  and  hold  him  up  to 
public  contumely,  than  the  man  who  has  maimed 
him? 

Taxpayers  of  the  United  States  have  had  the 
vaunted  success  of  British  municipal  undertakings 
dinned  into  their  ears  ad  nauseam.  No  less  adver- 
se 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

tised  has  been  the  defense  of  the  municipalities 
that  they  have  done  what  they  have  through  moral 
compulsion,  namely,  through  this  alleged  'ineffi- 
ciency" of  private  enterprise.  Where  private 
promoters  have  any  sort  of  freedom  in  a  land 
where  the  ''liberty  of  the  subject"  is  supposed  to 
be  sacred,  the  charge,  it  hardly  needs  saying,  will 
not  hold  water.  But  it  is  a  land  also  where  the 
"liberty  of  the  company,"  unlike  that  of  the 
individual,  is  not  so  respected,  for  a  body  of 
traders  which  happens  to  run  foul  of  a  muni- 
cipality has  its  growth  stopped  and  its  opportu- 
nities curtailed.  Like  a  pirate  ship,  a  municipality 
bears  down  on  private  craft,  but  fearing  to  risk 
capture  in  open  warfare,  first  makes  its  victim 
unseaworthy,  to  be  captured  at  will.  Then  it  re- 
builds and  re-equips  the  prize  with  a  lavish  ex- 
penditure of  public  money  and  sends  it  forth  on 
new  voyages  under  the  municipal  flag.  Small 
wonder  then  that  an  undertaking  under  municipal 
auspices  achieves  some  measure  of  "success"— 
just  the  measure,  in  fact,  which  it  would  have  done 
in  private  hands— had  it  been  let.  But  it  achieves 
no  more  than  that.  Or,  in  order  to  obtain  a  suc- 
cessful undertaking  on  expropriation,  which 
would  obviate  the  necessity  of  re-equipment,  a 
municipality  may  lie  low,  and  allow  private  enter- 
prise, during  the  franchise  of  21  years,  to  develop 

37 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

a  tramway  scheme  to  the  utmost,  so  that,  when  it 
gets  into  the  hands  of  the  municipality  at  half  its 
capitalized  value,  it  is  in  a  high  state  of  efficiency 
and  organization.^  In  this  case  a  local  authority 
becomes  possessed  of  a  ready-made  success  which 
it  is  not  difficult  for  them  to  continue;  and  they 
can  claim  no  credit  (though  they  do  so)  for  keep- 
ing the  undertaking  up  to  the  mark  achieved  by 
the  private  company,  who,  after  performing  all 
the  spade-work  and  bearing  the  heat  and  burden 
of  the  day,  has  tamely  to  surrender  its  property 
as  soon  as  it  promises  to  yield  to  them  some  re- 
ward for  their  labors. 

Another  aspect  of  the  crippling  policy  of  the 
municipalities  has  been  effectively  illustrated  by 
Mr.  Dixon  H.  Davies.^  * '  There  are  certain  indus- 
tries which  involve  an  amount  of  interference  with 
public  rights.  These,  it  is  suggested,  cannot  be 
properly  kept  under  control,  and,  therefore,  the 
only  alternative  to  disorder  is  to  have  them  muni- 
cipally administered.  The  truth  is  that  the  au- 
thorities are  so  infected  with  the  idea  of  acquiring 
them  that  they  do  not  honestly  try  to  regulate 
them.  Their  policy  produces  a  reactive  tendency 
in  the  same  direction  on  the  part  of  the  companies. 

*  Mr.  W.  M.  Murphy.     Before  Municipal  Trading  Committee, 
1900. 
'  Before  the  Society  of  Arts. 

38 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

A  gas  company  or  a  tramway  company  see  expro- 
priation looming  through  the  fog  of  local  con- 
troversy. Its  conductors  do  not  see  why  the  au- 
thorities should  choose  their  own  time  for  the 
purchase,  and,  therefore,  they  themselves  aggra- 
vate the  situation  in  order  to  hasten  the  decision 
of  the  authority  to  buy  out  the  company  at  the 
precise  moment  when  it  will  suit  them— in  view  of 
the  depreciated  state  of  its  undertaking  and  of  the 
capital  difficulties  ahead— to  part  with  the  con- 
cern. If  the  policy  of  acquisition  were  definitely 
abandoned,  the  authorities  would  be  able  to  en- 
force a  much  more  effective  system  of  control. ' ' 

Lax  municipal  regulation,  in  order  to  hasten  the 
end  of  a  private  undertaking,  does  not  favor  the 
proposition  that,  once  in  municipal  hands,  it  is 
likely  to  perform  superior  public  service ;  on  that 
score,  indeed,  the  municipalities  have  no  case 
worth  the  name.  But  the  municipal  boast  of  supe- 
rior public  service  has  been  enlarged  upon  by 
ownership  pamphleteers  as  a  persuasive  to  win 
over  American  taxpayers  to  the  acceptance  of  the 
principle  that  ownership,  on  this  and  other 
grounds,  should  be  generally  adopted  in  the  Uni- 
ted States.  If  American  cities  are  going  to  permit 
themselves  to  be  enslaved  by  the  idea,  and  to  fol- 
low blindly  in  the  footsteps  of  Great  Britain,  will 
they  reflect  upon  the  cost?  It  is  no  light  venture. 

39 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

The  troubles  which  overcame  them  after  the  close 
of  the  Civil  War,  through  the  adoption  of  a  simi- 
lar policy,  will  be  nothing  to  the  straits  in  which 
they  will  be  landed  if  they  repeat  that  experiment 
to-day. 

Let  it  be  assumed  that  they  acquire  public  un- 
dertakings, in  addition  to  those  they  already 
possess,  in  the  proj)ortion  which  British  munici- 
palities have  done.  We  may  dismiss  water- 
works, as  it  is  generally  conceded  that  water  is  as 
much  public  property  as  the  rainfall,  and  should 
be  conserved  and  distributed  by  the  public  au- 
thority. It  will  suffice  if  we  confine  our  pro- 
gram of  prospective  American  municipal  activities 
to  an  extended  ownership  of  street  railways,  gas- 
works, electricity  works,  and  telephones,  though 
the  survey  may  well  be  wider. 

In  Great  Britain, in  1903-4, there  were320tram- 
way  or  street  railway  systems,  of  a  total  capital 
value  of  £52,675,152  ($263,375,760),  146  of  which, 
representing  £19,711,008  ($98,555,040),  were  in 
private  hands,  and  174,  representing  £32,964,144 
($164,820,720),  in  municipal  hands,  say,  roughly, 
60  per  cent,  of  the  whole  tramway  capital.  The 
capital  value  of  all  the  street  railway  systems  of 
the  United  States  in  1902,  according  to  the  special 
reports  of  the  Census  office  issued  for  that  year, 
was  $1,315,572,960.    If  a  number  of  these  were 

40 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNEESHIP 

transferred  to  American  cities,  till  the  same  ratio 
as  the  government  and  municipal  owned  systefiis 
in  Great  Britain  bear  to  the  private  systems  was 
established,  this  would  mean  that  the  American 
local  debt  would  be  increased  by  $789,343,776. 

In  Great  Britain  in  the  same  period  there 
were  720  gas-works  of  a  total  capital  value  of 
£117,972,458  ($589,862,290),  of  which  459,  repre- 
senting a  capital  of  £80,869,179  ($404,345,895), 
were  in  private  hands,  and  260,  representing  £37,- 
103,279  ($185,516,395),  were  in  municipal  hands, 
say,  roughly,  31i^  per  cent,  of  the  whole  gas-works 
capital.  The  total  number  of  gas-works  in  the 
United  States  in  1900  was  877,  with  a  capital  value 
of  $567,000,000,  according  to  the  Census  reports  of 
1902,  of  which  $1,734,592  represented  municipal 
works.  But  in  1904  the  municipal  gas  undertak- 
ings had  a  capital  value  increased  to  $30,731,912. 
If  American  cities  increased  their  holding  in  gas 
undertakings  in  the  British  ratio  to  the  whole, 
after  allowing  for  the  proportion  they  owned  in 
1904,  the  American  local  debt  would  be  further 
expanded  by  $162,650,002. 

In  Great  Britain,  according  to  the  latest  statis- 
tics, there  were  778  electric  supply  ** orders"  or 
concessions  in  operation,  namely,  297  to  com- 
panies, and  481  to  local  authorities.  The  capi- 
tal value  invested  in  these  undertakings  is  £67,- 

41 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

000,000  ($335,000,000), of  which  £32,000,000  ($160,- 
000,000)  represents  private  capital  and  £35,000,- 
000  ($175,000,000)  municipal,  say,  roughly,  50  per 
cent,  of  the  whole.  The  cost  of  construction  and 
equipment  of  the  electricity  works  in  the  United 
States  in  1902,  according  to  the  Census  returns  of 
1903,  was  $504,740,352,  If  a  number  of  these 
works  were  also  transferred  to  American  cities 
with  a  capital  value  proportionate  to  that  which 
British  municipal  works  bears  to  the  whole 
capital  (50  per  cent.),  after  allowing  for  the  value 
of  the  electricity  works  they  possessed  in  1904 
($7,882,488),  there  would  be  a  further  $248,428,- 
932  to  swell  the  American  local  debt. 

In  Great  Britain  in  1905,  there  was  £16,765,530 
($83,827,650)  invested  in  telephones,  of  which 
£11,265,858  ($56,329,290)  represented  the  capital 
of  private  systems,  and  £5,499,672  ($27,498,360) 
government  and  municipal  systems,  the  latter  sum 
being,  say,  33  1-3  per  cent,  of  the  entire  telephone 
capital.  The  total  capital  value  of  the  private  tele- 
phone systems  in  the  United  States  on  latest  figures 
amounts  to  $384,534,066.  If  a  portion  of  these 
systems  were  taken  over  by  the  state  legislatures 
or  by  municipalities  in  the  same  ratio  (33  1-3  per 
cent.)  as  the  government  and  municipal  owned 
systems  in  Great  Britain  bear  to  the  private  sys- 
tems, there  would  be  an  addition  of  $128,178,022 
to  be  made  to  the  United  States  local  debt. 

42 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

These  additions  would  stand  thus: 
Municipalized  United  States  street  railways  $789,343,776 

(in  the  same  proportion  as  in  Great  Britain) 

Municipalized  gas-works   162,650,002 

(in  the  same  proportion  as  in  Great  Britain) 

Municipalized  electricity  works 248,428,932 

(in  the  same  proportion  as  in  Great  Britain) 

Municipalized  telephones 128,178,022 

(in  the  same  proportion  as  in  Great  Britain) 

Total  increased  local  indebtedness $1,328,600,732 

Add  existing  local  indebtedness  in  1904. .   1,521,462,655 

$2,850,063,387 


The  rate  of  interest  the  cities  would  have  to 
pay  in  order  to  raise  this  sum  of  $1,328,600,732, 
would  not  be  less  than  4  per  cent,  (which 
New  York  is  paying  now),  so  that  it  may  be  cal- 
culated what  a  pretty  bill  the  taxpayers  would 
have  to  pay  annually  in  interest  alone  if  the  ex- 
ample of  the  mother  country  is  going  to  be  fol- 
lowed to  these  lengths.  What  body  of  public  men, 
with  any  knowledge  of  the  economic  principles 
upon  which  states  and  cities  are  firmly  founded, 
can  view  such  an  accession  of  civic  liabilities  and 
responsibilities  without  alarm,  and  would  leave 
a  stone  unturned  to  prevent  the  overwhelming 
accumulation  of  municipal  interests  which  it  in- 
dicates? The  present  activity  of  the  ownership 
party  in  the  United  States  warrants  the  fear  that 

43 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

the  movement  may  yet  extend  to  these  propoo*- 
tions ;  but  surely  no  sane  public  body  would  suffer 
itself  for  long  to  be  dragged  by  the  heels  of  the 
socialistic  dreamers  and  opportunists  if  by  so  do- 
ing it  becomes  a  party  to  the  bringing  of  financial 
chaos  and  ruin  upon  the  community.  Yet  this  is 
what  Mr.  Bryan,  in  His  speech  in  Madison  Square 
Garden,  proposed  to  do,  and  what  may  be  part  of 
the  platform  of  a  great  political  party  in  1908. 
Nay,  more,  for  he  includes  the  trunk  railways  for 
the  National  Government  and  the  railways  within 
the  states  of  the  Union  for  the  various  state  gov- 
ernments to  own  and  operate.  It  will  be  seen  that 
the  pursuit  of  the  argument,  especially  as  applied 
to  the  United  States,  becomes  a  mere  reductio  ad 
absurdum. 

The  United  States  is  too  large  a  country  for  the 
municipalities  to  successfully  foreclose  on  public 
utilities  in  this  way,  and  hold  them  as  common 
properties.  An  illustration  of  the  ownership 
theory  pushed  to  its  maximum  lengths  may  be 
obtained  by  looking  at  two  particularly  large 
countries— Russia  and  Australia— (each  of  which 
will  be  considered  separately)  where,  under  a  dif- 
ferent environment  and  auspices,  the  ownership 
illusion  has  brought  about  one  ''finality"  from 
which  American  cities  might  take  warning  with 
profit.    In  Eussia,  as  we  shall  see,  the  absorption 

44 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

of  industry  by  the  Government  and  municipality 
is  rapidly  building  an  omnipotent  state  owner 
and  a  sole  dispenser  of  all  sources  of  wealth— a 
state  in  which  officialdom  increases  and  multiplies, 
while  those  compelled  to  bear  the  burden  find  it 
more  and  more  difficult  to  earn  their  daily  bread. 
The  objections  to  the  English  (or  American) 
citizen  embarking  in  commercial  business  **on 
the  joint  credit  of  himself  and  his  fellow  rate- 
payers," as  it  has  been  termed,  seem  to  me  to  out- 
weigh any  of  the  supposed  advantages  of  Munici- 
pal Trading,  namely— cheaper  capital;  better  ser- 
vice; higher  wages  of  labor  (which  means  that 
municipal  employes  are  paid  at  a  higher  rate 
than  private  employes,  who  contribute,  by  indi- 
rect taxation,  to  this  higher  scale  of  wages,  which 
they  do  not  themselves  enjoy) ;  profits  in  relief  of 
rates;  solicitude  for  the  consumer;  deep  concern 
for  posterity  (a  concern  considerably  tempered 
by  leaving  future  generations  to  redeem  huge 
loans);  escape  from  the  ** claws"  of  the  com- 
panies; superior  control  of  the  monopolies,  and, 
lastly,  that  most  fallacious  of  all  claims,  "the  re- 
vival of  the  municipal  spirit,"  which,  we  have 
been  told,  has  inspired  all  these  enterprises.  The 
true  municipal  spirit  should  have  nothing  to  do 
with  either  the  acquisition  or  management  of  in- 
dustries that  do  not  concern  the  well-being  and 

45 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

happiness  of  all  citizens  of  the  community.  It 
may  rightly  regulate  and  control  such  industries, 
and  zealously  guard  the  granting  of  rights,  privi- 
leges and  franchises  to  private  companies.  But 
the  fact  should  always  be  remembered  that  a  mu- 
nicipality can  more  effectively  keep  the  ''slum 
landlord"  in  order  when  it  is  not  a  slum  land- 
lord itself,  and  that  it  is  far  easier  for  lo- 
cal legislatures  to  control  and  regulate  street 
transport  by  requiring  low  fares,  quick  service, 
and  extension  of  tracks  from  private  compa- 
nies, when  they  are  not  tainted  with  the  fever- 
ish desire  for  acquisition  rather  than  when  that 
distressing  disease  permeates  them.  Let  them  do 
everything  possible  to  brighten  and  improve  the 
lives  of  the  people— afford  them  better  hygienic 
conditions  by  improved  sanitation;  provide  more 
parks  and  open  spaces,  and  increased  school  ac- 
commodations;  encourage  music  in  the  parks; 
and  promote  other  movements  for  uplifting 
the  masses  and  for  maintaining  the  munici- 
pal spirit  at  the  level  which  makes  the  work  of 
individual  corporate  bodies  count  in  the  progress 
of  a  nation.  Above  all,  let  the  city  fathers  teach 
self-reliance  and  self-respect  to  those  who  enjoy 
the  fruits  of  their  enterprise  in  these  directions, 
by  enjoining  on  them  the  duty  to  contribute  their 
fair  portion  to  the  upkeep  of  such  benefits,  and 

46 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNEBSHIP 

not  saddle  the  entire  cost  on  one  section  of  the 
community.  In  short,  municipalities  must  be  im- 
bued with  the  sense  of  social  justice. 

There  is  field  enough  and  to  spare  for  the  full- 
est display  of  civic  virtue  and  devotion,  and  like- 
wise business  acumen,  within  the  recognized 
boundary  of  municipal  work,  without  going  be- 
•  yond  it.  If  it  were  true  twenty-five  years  ago 
that  therein  they  had  more  than  ample  scope  for 
their  activities,  it  is  tenfold  true  to-day,  when, 
wholly  apart  from  trading,  the  ramifications  of 
municipal  duties,  either  imposed  on  local  bodies 
by  Parliament,  or  automatically  developed  by 
modern  needs,  growth  of  population  and  new 
ideas,  have  spread  far  beyond  their  former  limits. 

The  irreconcilable  adherents  to  the  shibboleth 
which  has  become  a  catchword  in  local  politics— 
'*No  finality  in  Municipal  Trading"— however, 
turn  from  such  a  program  as  offering  too  small 
game  for  them  to  pursue.  By  statutory  power 
they  propose  to  make  every  municipality  in  the 
land  a  competitive  manufacturer,  offering  higher 
wages  and  less  hours  to  the  laborers  able  to  secure 
municipal  employment.  This  is  the  bait  offered 
by  candidates  to  the  trades  unions— let  us  hope 
not  to  secure  election;  and  to  the  public  other 
attractions,  such  as  cheap  transportation  and 
commodities— or  perhaps  I  should  say,  to  that  por- 

47 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

tion  of  the  public  using  the  particular  utility.  If 
in  these  utilities  all  the  community  had  an  equal 
interest,  as  I  have  before  emphasized,  or  to  the 
support  of  which  those  who  pay  the  local  rates 
could  justly  be  called  upon  to  defray  the  portion 
of  those  who  do  not  pay  rates,  there  might  be  less 
ground  for  the  protests  of  angry  taxpayers. 
This,  however,  is  not  the  case. 

The  result  is  that  the  municipal  arena  is  now 
divided  into  two  camps— those  (the  lesser  por- 
tion) who  pay  and  do  not  equitably  enjoy  what 
they  pay  for,  and  those  (the  larger  portion)  who 
enjoy  what  they  pay  nothing  for.  Hence  the  self- 
development  of  municipal  bodies  into  unlimited 
liability  trading  corporations  (the  outcome  of 
which  is  to  curry  favor  with  the  many  at  the  ex- 
pense of  the  few)  has  created  a  conflict  of  social 
forces  in  Great  Britain,  the  end  of  which  is  not 
yet  in  sight.  Around  the  sacred  person  of  the 
town  clerk  has  grown  in  many  English  cities  a 
power  which  has  developed  into  a  competitive 
business  force,  oftentimes  antagonistic  to  the 
largest  ratepayers— a  force  that  unjustly  compels 
the  ratepayer  to  assume  responsibility  for  loans 
to  promote  industrial  undertakings  which,  if  suc- 
cessful, will  not  only  compete  with,  but  ultimately 
destroy,  his  own  business.  In  fact,  ennobling  civic 
work  in  which  all  could  join  has  become  blemished 

48 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

by  the  intrusion  of  the  sordid  ambition  to  utilize 
public  credits  in  money  making.  It  is  a  sort  of 
"heads-I-win-tails-you-lose"  proposition  for  the 
wire-pullers  who  initiate  and  develop  the  policy. 
If  the  industrial  venture  proves  successful  the 
profits  are  used  to  meet  the  deficits  of  some  less 
fortunate  ventures,  and  if  unsuccessful,  the  rate- 
payers pay  the  bill,  and  there  is  an  end  of  it.  The 
''joint  credit  of  himself  and  his  fellow  ratepay- 
er'* is  an  attenuated  fiction,  as  ''himself"  gen- 
erally proves  to  be  either  the  member  anxious  to 
retain  his  seat,  or  the  town  clerk  seeking  a 
larger  field  for  his  activities  and,  consequently, 
increased  prestige  and,  perhaps,  emoluments. 
The  "credit"  is  furnished  by  the  rate- 
payer, who  is  rarely  even  consulted,  for  to 
an  increasing  extent  pecuniary  responsibility 
in  English  cities  is  becoming  divorced  from  con- 
trol. Taxation  and  representation  do  not  go  to- 
gether. Those  who  provide  the  bulk  of  the 
funds  for  the  authority  are  without  any  voice  at 
all  in  the  election  of  the  local  governors  or  in  the 
control  of  their  policy.  Matters  of  police,  health 
and  education  concern  all  the  ratepayers  equally. 
Industrial  and  trading  undertakings  are  not  of 
equal  concern,  and  the  control  of  them  can  only 
justly  be  vested  in  those  who  provide  the  funds 
for  carrying  them  on.  In  short,  the  primary  duty 
4  49 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

of  a  local  government  board  is  to  govern,  and  not 
to  trade,  and  to  this  proposition  there  should  be 
no  exception  whatever. 

On  these  broad  grounds,  then,  the  case  against 
Municipal  Trading  is  undoubtedly  a  strong  one— 
sufficiently  strong,  I  should  think,  to  prevent  those 
who  advocate  its  debatable  advantages  from 
making  further  headway  in  a  country  like 
the  United  States.  In  Great  Britain  and  in 
some  of  its  colonies  the  problem  presents  it- 
self in  a  somewhat  different  form,  and  the 
question  is,  shall  this  policy,  which  has  already 
been  adopted,  be  continued?  Shall  it  be  fos- 
tered by  the  sanction  of  the  people,  or  uprooted  as 
a  failure?  Its  propagandists  claim  for  it  many 
virtues,  the  foundation  of  which  is  public  benefi- 
cence—always, it  is  well  to  remember,  with  public 
money.  The  fundamental  virtue  which  its  sup- 
porters pride  themselves  on  is  their  ability  to 
speculate  with  other  people's  money— a  quality 
which,  one  would  think,  demands  a  higher  stand- 
ard of  intelligence,  courage,  judgment  and  virtue 
than  to  speculate  with  one's  own  money.  As  a 
matter  of  fact,  most  of  the  commercial  advan- 
tages of  Municipal  Trading  have  during  the  last 
few  years  been  exploded.  Sound  commercial 
firms  in  England  pay  no  more  for  their  capital. 
It  has  been  demonstrated  over  and  over  again  that 

50 


THE  GENERAL  CASE  AGAINST  MUNICIPAL  OWNERSHIP 

a  municipality  can  do  the  work  no  cheaper  than, 
nor  indeed  so  cheap  as,  private  concerns.  No  one 
familiar  with  the  facts  will  contend  that  a  town 
council,  constantly  changing  its  membership,  is 
a  better  board  of  management  than  the  board  of 
directors  of  a  successful  company.  There  is  no 
proof  that  the  consumer  is  specially  benefited ;  the 
service,  under  private  ownership,  is  equally  good 
—in  most  cases  it  is  far  better  and  more  up-to- 
date  in  the  United  States,  and  the  relative  cost, 
after  considering  differences  in  price  of  labor  and 
of  raw  material,  is  less. 

The  duty  of  private  traders  is  clear,  if  they  are 
to  succeed  in  calling  a  halt  to  the  advance  of  the 
municipalities  in  both  countries.  They  must  once 
and  for  all  nail  to  the  counter  the  lie  that  they  ex- 
tort unfair  profits  out  of  the  public  and  also  fail 
to  perform  good  service.  Such  is  the  municipal 
trump-card,  and  private  traders  must  see  to  it 
that  by  playing  it  the  ownership  party  fail  to 
score.  The  key-note  of  the  policy  of  private  trad- 
ers must  be  well-doing,  and  it  has  been  well 
sounded  by  the  president  of  the  Gas  Lighting  As- 
sociation. In  his  annual  address  four  years  ago 
he  said— "We  believe  that  the  governing  authori- 
ties of  municipalities  must  be  brought  to  a  realiz- 
ing sense  of  the  importance  of  conserving  vested 
rights,  and  the  surest  way  to  coin  public  favor  is 

51 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

to  deserve  it.  The  identity  of  interest  idea  must 
prevail  with  the  public.  Privately  owned  com- 
panies, where  ability  and  enterprise  are  rewarded 
by  added  compensation  to  managers  and  just  prof- 
its to  owners,  and  where  the  merit  system  is 
found  at  its  best,  will  doubtless  hold  their  own  for 
a  long  time  to  come  against  any  demand  for  pub- 
lic ownership,  but  the  best  safeguard  which  we 
have  against  the  seeming  trend  of  public  opinion 
is  our  conduct  toward  the  communities  we  serve, 
which  should  result  from  the  careful  study  of  the 
interests  of  the  public  from  the  attitude  of  good 
citizenship." 


CHAPTER  in 

THE  DESTEUCTION  OF  INDIVIDUALITY — RUSSIA  AS 
AN  OBJECT  LESSON 

Civilization  defined  as  a  man  incessantly  advancing  .  .  A  na- 
tion's  progress  highest  where  aims  of  individual  man  allowed 
fullest  scope  .  .  .  Stagnation  and  impoverishment  where  State 
intervention  chokes  personal  initiative,  as  in  Russia  .  .  .  The 
State  in  Eussia  characterized  as  a  trading  corporation  first,  and 
a  government  afterward  .  .  .  Ambitions  of  British  Municipal 
Socialists  and  the  Russian  bureaucracy  alike,  namely,  the  crea- 
tion of  an  omnipotent  State  owner  and  sole  disposer  of  all 
sources  of  wealth  .  .  .  "What  Russian  municipalities  sell  .  .  . 
Effect  of  bureaucratic  domination  of  the  individual  in  Russia 
.  .  .  Her  finances  .  .  .  Bankruptcy  predicted  .  .  .  Condition  of 
Russian  agriculture  ...  A  drained  peasantry  .  .  .  Russia's 
debt. 

AFTER  all,  civilization  is  but  a  man  incessantly 
-Zr\.  advancing.  The  progress  of  the  world  in 
politics,  in  arts,  in  invention,  in  manufacture,  in 
ideas,  and  in  all  that  goes  to  make  up  our  compli- 
cated existence,  centers  around  individual  man. 
Who  have  taken  the  steps  forward?  Not  govern- 
ments, nor  states,  nor  municipalities,  nor  **  com- 
mittees of  citizens,"  nor  ** town-meetings, "  but 
individual  men,  inspired  with  new  ideas  and  earn- 
estly intent  on  carrying  them  into  effect.  It  is 
individual  men  who  have  harnessed  rivers  and 
waterfalls  for  our  manufacturing,  who  have  drawn 

53 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

unseen  elements  from  the  atmosphere  for  trans- 
port and  to  carry  our  messages  across  the  ocean, 
who  have  improved  navigation,  invented  all  use- 
ful methods,  sought  out  and  found  the  innu- 
merable properties  of  nature,  and,  in  fact,  have 
been  the  source  of  all  advancement  from  the  be- 
ginning of  the  world  to  the  present  time.  The  dis- 
tinction and  end  of  a  soundly  constituted  indivi- 
dual man  is  his  labor,  and  of  that  no  State  has  a 
right  to  rob  him.  Glancing  over  the  nations  of 
the  world  as  at  present  constituted,  we  find  that 
where  the  individual  man  has  been  allowed  the 
widest  latitude  and  freest  play  for  his  genius  and 
energy,  there  has  been  the  greatest  progress.  On 
the  other  hand,  in  countries  where  the  ruling 
policy  has  been  to  make  all  men  alike,  to  extin- 
guish individuality,  and  choke  all  channels  of  in- 
vention and  inspiration  by  Government  interfer- 
ence, where  man  no  longer  conducts  his  own  life, 
there  we  find  stagnation  and  impoverishment.  In 
short,  the  endeavor  to  manufacture  a  man's  life 
for  him,  by  the  very  nature  of  things,  always  has 
been  and  always  will  be  a  deadly  failure,  no  matter 
by  whom  promoted  and  by  what  power  enforced. 

The  tyranny  of  the  tyrant  is  no  worse  than  the 
tyranny  of  the  democracy.  There  is  no  essential 
difference  in  the  policy  of  universal  expropria- 
tion initiated  by  Count  Witte,  and  continued  by 

54 


THE  DESTRUCTION  OF  INDIVIDUALITY 

the  ministers  who  have  followed  him,  and  that 
of  British  local  bodies  under  .the  guise  of  Munici- 
pal Socialism— a  policy  which,  as  State  Owner- 
ship in  Australia,  has  practically  driven  indi- 
vidual enterprise  from  that  continent,  as  we 
shall  see.  In  Russia,  millions  have  been  spent 
in  building  up  a  vast  fabric  of  State  and 
Municipal  Ownership,  and  naturally  patronage 
is  becoming  the  strongest  pillar  of  irresponsible 
rule.  The  State  in  Russia  has  been  truthfully 
characterized  as  a  trading  corporation  first,  and 
an  organ  of  Government  only  as  a  subordinate 
function.  This  is  precisely  what  Municipal  Trad- 
ing is  rapidly  making  of  English  cities  and  towns, 
and  State  Ownership  bringing  about  in  Australia. 
In  the  latter  country  the  Government  is  in  the 
hands  of  those  whose  interests  as  workers  lie  in 
extravagant  outlays  on  public  works,  whose  know- 
ledge of  finance  is  limited,  and  who  have  little  to 
fear  in  the  event  of  collapse— in  short  the  Govern- 
ment may  be  described  as  expressing  the  collec- 
tive wisdom  of  ignorance.  In  Russia  the  power 
molding  these  schemes  is  vested  in  the  finance 
minister,  who  is  gradually  absorbing  all  indus- 
tries and  reducing  the  producing  population  to 
the  position  of  managers  of  State  departments, 
civil  servants,  and  State  laborers.  The  pretext 
for  these  operations  in  Russia  is  identically  the 

55 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

same  as  that  urged  by  the  English  Socialists  and 
Australian  Labor  Party,  namely,  public  benefi- 
cence, or  the  protection  of  the  individual  against 
the  individual.  The  result  in  Russia,  as  in  Eng- 
land and  Australia,  is  the  blight  of  individual  ef- 
fort and  the  poverty  of  the  private  traders 
who  pay  the  taxes.  In  Great  Britain  and  its 
colonies  the  power  molding  these  schemes  is 
vested  in  those  who  expect  to  benefit  by  increased 
wages,  shorter  hours,  and  additional  patronage. 
In  Russia  the  power  shaping  these  schemes  is 
vested  in  a  single  minister,  whose  aim  is  to 
buttress  in  every  possible  way  the  power  of  the 
State,  and  who  is  bent  on  centralizing  the  whole 
wealth  of  the  country  in  a  single  hand.  In  the 
one  case,  it  emanates  from  the  top  down;  in  the 
other  case,  from  the  bottom  up.  But  wherein  is 
the  difference?  The  results  are  precisely  the 
same. 

That  this  parallel  is  not  an  exaggeration  may 
be  easily  proved  by  a  closer  examination  of  the 
aims  and  ambitions  of  the  British  Municipal  So- 
cialists on  the  one  side,  and  those  of  the  so-called 
"maker  of  modern  Russia,"  Count  Witte— who  is 
responsible  for  the  modern  development  of  the 
Russian  bureaucracy— on  the  other.  We  are  fa- 
miliar with  the  list  of  industries  for  which  powers 
are  constantly  being  applied  for  by  various  Brit- 

56 


THE  DESTRUCTION  OP  INDIVIDUALITY 

ish  municipal  authorities.  It  includes  the  manufac- 
ture of  steam-engines,  dynamos,  gas  and  elec- 
tric fittings,  paving  materials,  cold-air  storage, 
ice  manufacture,  milk  supply,  concert  rooms,  ho- 
tels, Turkish  baths,  and  cycle  tracks.  Tram-car 
factories  have  been  established,  and  even  a  brass- 
foundry  to  make  fittings.  Municipal  telephones 
have  been  undertaken,  and,  after  an  inglorious  ex- 
istence, are  now  moribund.  Municipal  fire  insur- 
ance has  been  established,  and  a  universal  system 
has  been  proposed.  Municipal  banks  (a  system 
of  receiving  deposits  in  many  towns  is  now  in 
vogue  which  does  not  greatly  differ  from  actual 
banking),  the  issue  of  municipal  bank-notes,  muni- 
cipal pawn-broking,  municipal  bakeries,  municipal 
coUeries,  municipal  public-houses,  municipal  print- 
ers, and  municipal  tailors  have  all  been  seriously 
suggested. 

If  these  extraordinary  proposals  represent  Fa- 
bianism, there  is  only  one  place  I  know  of  in 
which  they  may  be  found  in  full  force,  and  that 
is  in  the  Russian  Empire.  The  carrying  out  of 
such  a  policy  in  countries  like  Great  Britain  or 
the  United  States  would  be  nothing  short  of  na- 
tional and  industrial  destruction.  Individual  en- 
deavor is  to  be  forcibly  robbed  of  the  fruits  of  its 
labors,  and  the  State  and  municipality  is  to  take 
charge  of  the  exploitation  of  all  common  needs 

57 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

and  ascertained  processes.  Having  been  thus  de- 
prived of  that  which  is  rightly  its  own,  private  en- 
terprise is  to  be  bidden  to  invent  new  processes, 
initiate  new  methods,  create  fresh  wants  and 
found  new  industries,  so  that,  in  due  course  of 
time,  State  or  local  government,  with  their  en- 
larged powers,  may  seize  or  appropriate  them. 
Here  we  have  a  plan  of  universal  expropriation 
mapped  out  which  would  do  credit  to  Count  Witte. 
Like  the  British  municipal  trader,  that  states- 
man has  invented  a  system  by  which  the  State  or 
municipality,  as  the  case  may  be,  marches  to 
wealth ;  the  people  or  ratepayers,  as  the  case  may 
be,  to  ruin;  and  the  minister  or  town  clerk,  as 
the  case  may  be,  to  omnipotence  or  assassination. 
Russian  policy  is  precisely  that  of  the  advocate 
of  Municipal  Socialism— namely,  the  creation  of 
an  omnipotent  State  owner  or  sole  disposer  of  all 
sources  of  wealth;  that  is,  a  State,  as  one  writer 
describes  Russia,  with  the  civil  inhabitants  merged 
in  officialdom,  dependent  upon  the  Government  for 
their  daily  bread,  and  servants  of  an  autocracy 
forever. 

The  above  program  Mr.  Bernard  Shaw  must 
have  had  in  mind  when  he  wrote  in  "Fabianism 
and  the  Empire"  (a  manifesto  written  to  convert 
the  electorate  to  socialism  at  the  general  election 
of  1900) :  ''If  any  candidate  at  the  election  shows 

58 


THE  DESTRUCTION  OP  INDIVIDUALITY 

the  slightest  weakness  on  this  subject  (Municipal 
Trading)  he  should  be  voted  against  without  re- 
gard to  party.  And  the  opportunity  should  be 
seized  by  the  next  Government  to  enlarge  the 
powers  of  local  bodies  until  they  are  able  to  force 
private  enterprise  into  its  proper  sphere,  which  is 
not  the  exploitation  of  common  needs  and  ascer- 
tained processes,  but  the  sphere  of  invention,  initi- 
ation and  the  creation  of  new  needs  and  new  indus- 
tries. ' '  Russia  must  surely  be  the  municipal  trad- 
er's  paradise,  and  St.  Petersburg  and  Moscow,  not 
Glasgow  and  Spring  Gardens,  his  ideals.  No  more 
subtle  means  of  concentrating  the  wealth  of  the 
people,  and  exterminating  private  industry  and 
initiative  could  be  hit  upon  than  the  policy  es- 
tablished in  Russia,  which  is  all  the  more  destruc- 
tive in  being  practised— as  it  is  in  Great  Britain— 
to  mislead  taxpayers  into  the  belief  that  it  is 
philanthropic  and  progressive  in  spirit.  This  mo- 
tive, ingeniously  strengthened  by  actions  that  bear 
upon  the  surface  a  specious  good-will  and  sincer- 
ity, even  wins  over  the  sympathies  of  those  who 
mistrust  the  Witte  policy  and  its  continuance  by 
his  successors.  Before  Chicago  citizens  became 
exercised  about  who  should  run  their  street-rail- 
ways, and  before  London  ratepayers  were  exas- 
perated with  their  County  Council  for  its  blind 
attempts  to  establish  an  elaborate  ferry  service 

59 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

on  the  Thames  with  little  traffic  to  support  it,  in 
Russia  everything  had  become  municipalized.  The 
State  deserves  some  credit  (such  as  it  is)  for  be- 
ing content  with  working  the  railways,  mines  and 
steel  works,  and  selling  vodka ;  but  the  local  gov- 
ernments place  no  such  limits  on  their  enterprise. 
They  sell  agricultural  machinery,  seed,  horses, 
cattle,  sewing-machines,  text-books,  medicines,  and 
magic  lanterns,  to  say  nothing  of  managing  thea- 
ters, delivering  lectures,  translating  foreign  clas- 
sical writers,  and  bowdlerizing  the  works  of  au- 
thors of  their  own  country,  for  the  benefit  of  the 
masses.  One  city(Tiflis)  even  competes  with  its 
retail  butchers,  and  also  sells  sewing-machines  on 
the  instalment  system  to  impecunious  seam- 
stresses.* 

The  attempts  of  Russia,  since  the  war  with  Ja- 
pan, to  raise  foreign  loans,  reflect  the  internal  fi- 
nancial condition  of  the  country.  Other  countries, 
whether  through  war  or  other  causes,  which  seek 
money  to  put  their  fiscal  machinery  in  order,  ob- 
tain all  they  require  from  within  their  own  bor- 
ders. Russia  has  to  seek  the  assistance  of  capi- 
talists of  other  nations.  It  is  the  universal  sys- 
tem of  State  and  municipal  expropriation  of  prop- 
erty honeycombing  the  whole  country  which  ac- 
counts for  the  inability  of  her  own  people  to  sup- 

»Mr.  E.  E.  C.  Long,  "Fortnightly  Review,"  1903. 

60 


THE  DESTRUCTION  OF  INDIVIDUALITY 

ply  her  with  funds.  Only  by  ruthless  taxation 
can  it  be  supported.  Its  autocracy  wants  much 
of  itself,  and  the  vast  trading  bureaucracy  no  less. 
Betwixt  the  two,  the  people  are  well  drained.  The 
false  complexion  of  public  benevolence  under 
which  the  blighting  process  is  pursued  is  soon 
rubbed  off  by  the  discovery  that  it  only  means  a 
yet  more  bloated  officialdom  and  a  leaner  peas- 
antry. So  that,  looking  below  the  surface,  not 
every  one  is  deceived.  The  tribulations  of  Tsar- 
dom  daily  recorded  by  the  newspapers,  the  sub- 
terranean workings  of  the  revolutionary  party 
which  periodically  reach  the  surface  in  death- 
dealing  explosions  of  revolt,  and  the  spiritual  in- 
fluence wielded  by  Gorky  and  Tolstoy,  to  stem 
which  the  temporal  powers  of  the  State  are  help- 
less, reveal  too  clearly  that  the  mute  millions  of 
Russia  are  raising  their  voice  in  their  own  way 
against  the  socialistic  creed  which  will  have  it 
that  no  man's  soul,  body,  purse  or  possessions  are 
his  own,  but  belong  to  the  community— that  is,  to 
a  horde  of  man-eating  bureaucratic  officials  and 
their  countless  minions  and  parasites. 

As  onlookers  see  most  of  the  game,  it  is  out- 
side Russia  where  the  true  prophet  is  most  likely 
to  arise.  At  the  close  of  the  war,  one  arose  in 
Berlin— a  statistician  of  note  and  a  councilor 
of  state— by  name  Rudolf  Martin,  who  wrote  a 

61 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

brochure  called  ''Die  Zukunft  Russlands  und  Ja- 
pans, ' '  wherein  he  boldly  said  that  the  bankruptcy 
of  Russia  is  one  of  the  certainties  of  the  near  fu- 
ture. This  is  a  form  of  courage  which  Germany, 
like  its  neighbor,  did  not  appreciate,  and  Mr.  Mar- 
tin was  denounced  by  his  Government.  In  Eng- 
land Mr.  Martin's  views  at  the  time  were  regarded 
in  some  respects  as  reflecting  the  power  of  ob- 
servation and  originality  of  conception  which 
marked  Bismarck  in  his  early  years;  but,  unlike 
Bismarck,  he  got  more  kicks  than  halfpence  for  his 
pains.  Despite  his  Government's  taboo,  however, 
his  views  were  greeted  as  showing  that  there  are 
some  men  even  in  the  Fatherland  who  understand 
the  trend  of  world  forces,  and  have  the  courage 
not  to  be  silent.  Russia's  bankruptcy,  he  thinks, 
may  be  delayed  for  ten  or  fifteen  years,  but  it  prob- 
ably will  come  sooner  than  later.  Advancing  rea- 
sons for  his  views,  he  points  to  the  condition  of 
Russian  agriculture,  which,  at  present,  he  states, 
produces  per  head  of  those  engaged  in  it  one- 
eleventh  to  one-tenth  of  the  corresponding  figure 
in  the  United  States;  whilst  the  same  rich,  black 
soil  of  Muscovy,  acre  for  acre,  produces  only  one- 
third  of  that  from  the  inferior  soil  of  Germany, 
and  a  fourth  to  one-fifth  of  that  of  England  and 
France.  Decades  of  industrial  education,  and 
hundreds  of  millions  of  rubles,  he  calculates,  are 

62 


THE  DESTEUCTION  OF  INDIVIDUALITY 

necessary  to  ameliorate  the  condition  of  things 
in  any  substantial  degree.  But  there  is  no  indi- 
cation that  the  Slav  race  has  the  needful  impulse 
to  make  the  effort.  How  can  they,  when,  from  the 
top  of  Russian  society  downward,  they  are  oflS- 
cialized  out  of  all  individual  enterprise  ?  No  one, 
themselves  least  of  all,  would  benefit  by  any  ac- 
cession of  their  energies,  except  their  pastors  and 
masters,  that  is,  their  local  authority— in  its  turn 
the  limb  of  the  bureaucracy— which  enters  re- 
morselessly into  their  personal  lives  by  laying  a 
heavy  hand  upon  the  yield  of  their  labors,  saying, 
''This  much  shalt  thou  have,  and  this  much  the 
State,"  and  the  State's  portion  is  the  greater.  To 
be  sure,  Municipal  Socialism  must  be  kept  up  by 
some  means.  It  is  the  lack  of  stimulus  in  the  Rus- 
sian peasant  to  cultivate  his  land  (which  must 
plainly  be  attributable  to  a  want  of  self-respect 
and  of  real  patriotism,  however  much  he  may 
show  a  sentimental  adoration  of  the  reigning 
dynasty)  wherein  lies  the  hopelessness  of  Russian 
agriculture.  He  would  only  be  working  for 
the  support  of  a  vast  trading  bureaucracy,  which 
wants  all  he  can  give  them  for  its  corrupt  offi- 
cials to  prosper  upon.  Those  who  think  that, 
with  such  a  widespread  wet  blanket  chilling  all 
personal  initiative  in  Russia,  a  new  paper  Con- 
stitution, or  a  Duma,  will  do  anything  to  effect  the 

63 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

regeneration  of  that  country,  are  blindly  ignoring 
the  lessons  of  history.  Russia,  in  her  present 
plight,  affords  a  shining  example  of  what  may  be- 
fall a  country  which  pursues  State  and  Municipal 
Trading  on  extensive  and  uncompromising  lines. 
The  war,  and  the  Russian  idea  of  government, 
are  contributory  causes;  but  it  is  excessive  tax- 
ation, for  whatever  purpose,  which  constitutes  the 
main  one.  Russia  in  1905  had  the  second  largest 
debt  of  any  country  in  the  world,  namely,  $4,125,- 
000,000,  of  which  she  owed  over  $2,500,000,000  to 
foreign  countries,  which  makes  her  the  greatest 
international  debtor  of  all  times,  in  contradistinc- 
tion to  other  nations,  who  borrow  of  their  own 
people.  Her  foreign  debt  also  is  bound  to  grow. 
The  average  favorable  balance  of  her  foreign 
trade  during  the  past  ten  years  has  been  $95,- 
000,000  a  year;  while  for  interest,  etc.,  she  has 
to  pay  $185,000,000  a  year.  By  the  issue  of  fresh 
loans,  so  far,  the  difference  between  these  two 
amounts  has  been  met;  but  the  annual  deficit  in 
the  balance  of  trade  will  expand  with  the  growth 
of  the  foreign  debt  until  it  reaches  $150,000,000 
per  annum.  That  stage  reached,  on  the  calcula- 
tion of  Mr.  Martin,  Russia  will  be  unable  to  make 
any  fresh  loans,  which  means  bankruptcy. 

The  Paris  "Temps"  has  stated  that  the  pres- 
ent deficit  has  already  reached  the  colossal  sum 

64 


THE  DESTRUCTION  OF  INDIVIDUALITY 

of  155,000,000  roubles  (approximately  $149,166,- 
665),  and  if  this  be  true,  and  Mr.  Martin  is  right, 
then  Russia  is  even  now  insolvent.  In  contradic- 
tion of  this  report  come  some  "official  figures" 
published  at  St.  Petersburg,  which  put  the  pres- 
ent deficit  at  60,000,000  roubles  (say  $50,000,000) ; 
but  whilst  making  every  allowance  for  their 
source,  there  is  more  reason  to  believe  that  the 
real  deficit  more  nearly  approaches  the  larger 
than  the  smaller  figure. 

Hitherto  Russia  has  accomplished  much  by  re- 
sorting to  the  common  device  of  State  and  munici- 
pal managements— making  a  shop- window  show  of 
her  financial  status.  But  the  impressive  gold  re- 
serve she  has  flaunted  before  the  eyes  of  the  world 
is  all  borrowed  money ;  still,  that  treasured  hoard 
has  formed  the*  unlimited  letter  of  credit  by  which' 
she  has  drawn  on  the  leading  countries.  With  its 
due  disappearance  will  depart  Russia's  power  to 
raise  further  money.  Mr.  Martin  counts  it  the 
patriotic  duty  of  every  one  familiar  with  the  facts 
to  utter  a  warning  against  the  engulfing  of  further 
millions  into  the  abyss  of  mismanaged  Muscovy. 

Much  of  this  discredit  a  baneful  system  of  State 
and  Municipal  Trading  has  brought  upon  a  great 
country.  Under  the  system  devised  by  Count 
Witte,  the  local  governments  are  said  to  act 
as  "the  financial  minister's  jackals,"  eliminat- 

6  65 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

ing  the  private  trader  and  creating  vast  or- 
ganizations which  the  State,  in  the  course  of 
its  continuous  warfare  against  free  local  gov- 
ernment, expropriates.  The  policy  is  to  shackle 
every  one's  initiative  but  that  of  the  finance 
minister.  As  the  local  governments  are  com- 
pletely under  his  thumb,  their  enterprise  is 
merely  State  trading  in  another  form,  which  has 
the  cardinal  advantage  that  it  hampers  individual 
enterprise  and  passes  thousands  of  free  individu- 
als under  the  yoke  of  administrative  tutelage. 
And  the  solemn  pretext  for  this  destruction  of  pri- 
vate enterprise  is  identically  the  same  as  Mr. 
Shaw's  '^ public  beneficence"  nostrum.  Indeed,  the 
Eussian  policy  should  warm  the  heart  of  the  stren- 
uous American  municipal  trader,  for  it  is  des- 
tined to  end  in  the  absorption  of  all  industries, 
and  in  the  reduction  of  the  producing  population 
to  the  enslaved  condition  of  State  and  municipal 
officials  of  various  grades. 


66 


CHAPTEE  IV 

THE  PUBLIC  WOBKS  POLICY  OP  ATTSTEALASIA 

Growth  of  State  servants  .  .  .  Political  standard  .  .  .  Begin- 
nings of  public  works  policy  .  .  .  Programs  of  the  Australian 
"LahoT  Party  .  .  .  State  acquisition  of  all  prosperous  industries 
the  ultimate  aim  .  .  .  The  anti -socialistic  party  .  .  .  Effect  of 
the  public  works  policy  on  the  Australian  working-man  .  .  . 
State  pensions  the  completion  of  a  vicious  circle  .  .  .  Australian 
prosperity  due  to  natural  not  to  artificial  causes  .  .  .  Austra- 
lasian public  debts  collectively  compared  with  those  of  United 
Kingdom  and  United  States,  and  individually  with  single  Ameri- 
can states  of  like  population  .  .  .  Public  works  policy  of  New 
South  Wales  .  .  .  The  State  as  a  large  and  regular  employer  of 
labor  .  .  .  Consequent  large  indebtedness  .  .  .  The  budget  * '  sur- 
plus" for  1906  analyzed  .  .  .  Criticisms  of  the  "Sydney  Bulle- 
tin" .  .  ,  Recent"  financial  history  of  Western  Australia  sur- 
veyed .  .  .  Failure  of  attempt  to  blend  democracy  and  bureau- 
cracy in  Australia  .  .  .  Its  development' virtually  at  a  standstill 
through  the  political  power  of  the  Labor  Party. 

THE  present  condition  of  Russia,  with  its  dy- 
nasty and  bureaucracy  alike  in  danger  of  be- 
ing wrecked  sooner  or  later  by  the  revolutionary 
party,  hardly  warrants  our  looking  to  that  country 
for  the  realization  of  such  a  state  of  things.  She 
has  gone  so  far,  but  she  cannot  go  much  further. 
Revolution  bars  the  way.  We  must  turn  to  an- 
other country  (Australia)  where  no  such  over- 
whelming obstacle  is  present.  There  State  and  , 
municipal  aggrandizement  is  proceeding  at  an ' 

67 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

equally  rapid  pace,  and  likely  to  reach  a  stage,  in 
course  of  time,  which  promises  the  fulfilment  of 
the  worst  predictions  of  economists  if  the  social- 
istic party  in  the  pending  federal  elections  (which 
probably  will  have  been  decided  by  the  time  this 
work  is  in  print)  gain  the  day. 

Already,  we  are  told,  the  State  servants  con- 
stitute almost  a  clear  majority  of  the  names  on 
the  electors  *  rolls ;  the  State,  indeed,  is  on  the  way 
to  becoming  the  sole  employer  of  labor  in  the  com- 
munity. And  who  are  they,  it  is  asked,  who  work 
this  juggernaut  of  an  engine,  who  run  this  over- 
grown business  of  State?  They  are,  we  are  in- 
formed, "not  seldom  men,  who,  in  private  life, 
would  hardly  be  trusted  to  run  an  apple-stall. ' '  It 
is  therefore  not  to  be  wondered  at  that  political 
morality  is  steadily  degenerating,  that  politicians 
as  a  class  compare  unfavorably  with  those  of  most 
European  countries,  that  corruption  is  said  to  be 
increasing,  and  that  the  average  member  of  the 
Australian  Parliament  is  only  concerned  about  en- 
gineering the  appropriation  of  public  money  for 
railways,  waterworks  and  other  undertakings  to 
furnish  his  own  constituency  with  profitable  em- 
ployment. 

The  public  works  policy  of  Australia  began  with 
the  partial  ownership  of  land  and  a  complete  grip 
of  land-transport.    If  it  had  stopped  at  that,  all 

68 


THE  PUBLIC  WORKS  POLICY  OP  AUSTRALASIA 

would  probably  be  well,  as  Government  land 
is  not  unknown  in  other  countries,  and  rail- 
ways have  become  partially  State-owned  in  a  re- 
publican country  like  France,  and  in  a  bureau- 
cratic country  like  Germany.  But  Australian  so- 
cialism, having  driven  a  preliminary  wedge  in  by 
the  capture  of  the  lines,  has  since  then  gone  far. 
Here,  for  instance,  are  some  of  the  undertakings 
which  chiefly  account  for  the  public  debt  of  South 
Australia:  Railways,  tramways,  post-office,  tele- 
graphs, waterworks,  sewers,  jetties  and  light- 
houses, land  repurchase  and  homestead  blocks, 
and  harbors.  These  works  are  representative  of 
the  public  works  policy  of  the  other  states.  One 
would  think  that  the  socialistic  program  having 
been  thus  far  carried  out,  the  time  had  come  for 
a  prudent  pause  in  order  to  see  the  economic  out- 
come of  experiments  never  carried  out  before, 
and  to  determine  the  expediency  of  their  continu- 
ance or  otherwise.  But  the  Labor  Party  of  the 
Commonwealth  does  not  contemplate  marking 
time,  unless  an  anti-socialistic  reaction,  by  no 
means  unlikely,  compels  it  to  do  so.  To-day,  ac- 
cording to  reliable  authority,  its  demands  for  the 
suppression  of  individuality  are  blatant  and  un- 
compromising. 

The  Queensland  Labor  Party  has  a  program 
whose  principal  object  is  the  "collective  owner- 

69 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

ship  of  the  means  of  production,  distribution 
and  exchange,  to  be  obtained  through  the  ex- 
tension of  the  industrial  and  economic  func- 
tions of  the  State  and  local  governing  bodies"; 
whilst  in  addition  to  State  railways  and  water- 
works, they  desire  ''State  fire  and  life  insurance, 
State  breweries,  distilleries  and  taverns,  and  the 
importation,  manufacture  and  distribution  of  in- 
toxicants to  be  entirely  undertaken  by  a  Govern- 
ment department."  The  Victorian  Labor  Party 
apparently  is  less  aggressive,  as  it  is  certainly 
less  definite  in  its  program,  which  expresses  the 
party's  object  as  "the  gradual  nationalization 
by  the  means  of  production,  distribution  and  ex- 
change. ' '  Labor  in  New  South  Wales  would  have 
"the  securing  to  all  producers  of  the  full  results 
of  their  industry,  by  the  collective  ownership 
of  monopolies,  and  the  extension  of  the  indus- 
trial and  economic  functions  of  the  State  and 
municipality. ' ' 

In  the  framing  of  the  two  latter  programs,  there 
are  symptoms  of  no  little  cogitation  and  verbal 
jugglery.  The  intention  appears  to  be  to  spread 
the  socialistic  net  as  wide  as  possible,  so  as  to  pro- 
pitiate all  shades  of  collect! vist  opinion— from 
the  extreme  irreconcilables  to  the  moderates. 
Loath  to  alienate  a  numerous  class  (men  of  limited 
means)  who  might  be  won  over  to  "a  policy  of 

70 


THE  PUBLIC  WORKS  POLICY  OF  AUSTRALASIA 

'divide*  if  their  present  share  of  the  world's 
goods  did  not  amount  to  more  than  they  could 
count  upon  in  the  event  of  a  socialistic  equaliza- 
tion,*'^ some  sections  of  the  Australian  Labor 
Party  seem  to  have  determined  on  a  line  of  least 
resistance  in  order  to  counteract  the  natural  im- 
pression that  their  drastic  aims  meant  the  destruc- 
tion of  financial  and  commercial  confidence  in  their 
country.  The  nationalization  of  all  industries, 
however,  remains  their  main  plank.  But  it  is  not 
advanced  in  its  entirety ;  as  yet  it  is  far  too  big  a 
pill  for  the  general  electorate  to  assimilate.  The 
federal  elections,  which  will  have  been  fought  on 
the  single  issue  of  whether  socialism  is  or  is  not 
to  be  the  paramount  factor  in  Australian  politics, 
necessitated  some  agreement  between  the  labor 
parties  of  the  various  states  as  to  what  they  want. 
A  common  denomination  was  apparently  arrived 
at  by  planing  down  the  main  plank  to  the  national- 
ization only  of  those  industries  which  were  of  the 
nature  of  semi-monopolies.  This  clearly  is  no 
unattractive  bait  to  the  men  of  limited  means  and 
other  waverers,  if  they  could  be  buoyed  up  with 
the  assurance  that,  far  from  their  interests  being 
in  jeopardy  by  the  change,  they  would  be  strength- 
ened. The  outcome  of  this  modification  of  social- 
istic ambitions  is  that  the  electorate  were  asked 

*  London  "Sunday  Times,"  Oct.  22,  1905. 

71 


THE  DANGEES  OF  MUNICIPAL  OWNEKSHIP 

to  approve  of  an  amendment  of  the  Constitution 
enabling  the  Federal  Government  to  acquire  and 
carry  on  all  industries  of  the  nature  of  monopolies. 
From  what  has  already  been  said,  it  is  not  sur- 
prising to  learn  that  ''this  limitation  is  merely  a 
pretense,  and  that  all  prosperous  industries  are 
aimed  at,  regardless  of  their  character,  as  may 
be  seen  in  the  selection  of  the  industries  which  are 
avowedly  to  be  dealt  with  first.  In  the  front  rank 
are  placed  the  sugar  and  tobacco  industries  and 
the  Australian  shipping  trade,  while  in  the  sec- 
ond come  banking  and  assurance.  None  of  these, 
of  course,  has  a  monopoly  character  such  as  nec- 
essarily appertains  to  railways,  tramways,  gas- 
works, waterworks,  etc.,  which  rest  upon  special 
legislation.  Even,  therefore,  if  the  circumstance 
had  not  been  made  quite  clear  by  the  teaching  of 
the  Watsonites  (the  Labor  Party)  in  their  press 
and  in  their  addresses,  the  character  of  the  indus- 
tries immediately  threatened  indicates  that  not 
monopolies,  but  all  prosperous  industries  are  the 
plums  which  the  socialists  consider  ripe  for  their 
gathering. ' '  ^ 

The  hope  of  Australia  lies  in  its  Anti- Social- 
ist Party,  whose  platform  includes  "opposition 
to   unjustifiable    Government    interference   with 

-"A  Fair  Fight  with  Socialism,"  London  "DaUy  MaU, "  May 
21,  1906. 

72 


THE  PUBLIC  WORKS  POLICY  OF  AUSTRALASIA 

private  enterprise;  resistance  to  the  nationaliza- 
tion of  industries  and  enterprises ;  and  opposition 
to  the  acquisition  by  the  Government  of  any  in- 
dustrial monopoly,  on  the  ground  that  a  private 
monopoly  may  be  broken  up  by  competition,  but 
that,  on  the  other  hand,  a  government  monopoly 
may  be  supported  by  legislation. ' '  The  leader  of 
the  Anti-Socialist  Party,  Mr.  G.  H.  Reid,  appears 
to  be  reconciled  to  the  present  State  ownership  of 
general  utilities  like  the  railways  and  postal  ser- 
vices, but  he  draws  his  own  line  of  demarcation  be- 
tween them  and  other  schemes.  The  control  of 
the  general  utilities  already  in  the  hands  of  the 
Australian  State,  he  has  submitted,  enable  the 
Government  to  widen  the  paths  of  private  enter- 
prise (the  conclusion  is  arguable) ;  whilst  the  soci- 
alists, by  bringing  in  other  schemes  not  general 
utilities,  seek  to  destroy  private  enterprise.  But 
there  is  no  doubt  he  is  right  when  he  says  that 
those  "who  would  suffer  most  by  the  mistakes 
of  socialism  would  be  the  working  classes,  who  had 
no  margin  to  make  mistakes  upon,  and  who  re- 
quired every  penny  they  received  for  the  ordinary 
necessities  of  life. "  ^  , 

It  is  apparent,  therefore,  that  the  Australian 
working-man,  for  the  most  part,  is  living  in  a  fool 's 
paradise.    If  the  State  or  city  takes  away  one 

»"The  Australasian,"  May  26,  1906. 

73 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

after  another  the  opportunities  for  profitable  em- 
ployment of  private  capital  and  brains,  the  logi- 
cal result  is  that  other  occupations  become  over- 
crowded, the  struggle  for  existence  gets  harder, 
and  an  increasing  number  of  persons  must  come 
upon  the  State  or  city  for  support.  It  is  to  be 
gathered  that  in  New  Zealand  every  second  per- 
son over  sixty-five  years  of  age  has  a  State  pen- 
sion; in  Victoria  (population  1,210,305)  about 
every  third  person  above  that  age  is  fed  by  the 
State.  In  1904  -  5  this  state  paid  away  in  pensions 
the  sum  of  £327,634  ($1,638,170).  In  New  South 
Wales  (population  1,461,543),  22,000  persons  are 
pensioned  at  an  annual  cost  of  £508,000  ($2,540,- 
000),  the  distribution  of  which  costs  another 
£20,000  ($100,000).  The  latest  proposal,  recom- 
mended by  a  commission  (which  urges  immediate 
action),  is  that  a  pension  of  10s.  per  week,  appli- 
cable to  all  the  Australian  states,  should  be  paid 
to  all  reputable  persons  over  65,  to  be  granted  as 
a  right,  not  as  a  charity.  This  is  estimated  to 
cost  the  country  no  less  than  £1,500,000  ($7,500,- 
000)  a  year.  On  the  surface  this  looks  like  a 
happy  state  of  things  in  store  for  the  Australian 
working-man.  But  what  of  the  classes  above  him, 
from  whom  taxation  is  wrung  in  order  that  public 
works  on  a  large  scale  should  be  carried  on,  mainly 
for  the  purpose  of  affording  employment  for  a 

74 


THE  PUBLIC  WORKS  POLICY  OF  AUSTRALASIA 

privileged  class?  What  of  the  working-man  with 
a  mind  of  his  own,  who  scorns  to  affiliate  and 
merge  his  career  in  an  order  of  things  which, 
whatever  else  it  might  do,  acts  as  a  blight  on  in- 
dividuality and  character,  and  may  ultimately 
breed  a  community  of  drones,  sybarites,  idlers  and 
sycophants  who  will  cluster  round  the  ship  of 
State  like  barnacles?  Well,  he  is  kept  poor  all 
his  life  by  the  increment  of  taxation  levied  on  him 
to  support  his  less  courageous  fellow-creatures; 
he  is,  in  short,  prevented  from  "laying  up  treas- 
ures for  himself"  by  the  overwhelming  impedi- 
ment of  the  State,  which  denies  him  the  right  to 
do  so.  On  this  ground,  the  institution  of  univer- 
sal pensions  is  only  giving  to  a  man  in  his  old  age 
what  he  has  been  withheld  from  obtaining  for  him- 
self during  his  active  life.  But  it  hardly  needs 
saying  that  the  average  man,  when  past  his  cli- 
macteric, would  prefer  to  live  on  his  own  means 
rather  than  submit  to  the  ignominy  of  having  to 
come  on  the  State  as  a  pauper.  No  other  fate, 
however,  appears  to  be  in  store  for  him.  Pen- 
sions, whilst  inevitable  and  just  in  such  circum- 
stances, are  merely  the  completion  of  a  vicious 
cycle. 

At  present,  according  to  the  Federal  Budget, 
and  the  returns  of  the  various  states,  Australia 
is  enjoying  a  period  of  prosperity  that  has  not 

75 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

been  her  fortune  for  some  years  past.  If,  despite 
the  presence  of  socialistic  elements  which  clog 
her  progress  as  a  nation,  she  still  can  show  com- 
mercial activity,  what,  it  may  be  asked,  would  her 
development  be  were  she  able  to  throw  off  her 
fetters  and  give  the  fertility  of  her  soil,  and  the 
enterprise  of  her  people,  the  fullest  stimulus  and 
freedom!  The  diplomatic  optimism  of  the  fed- 
eral treasurer  when  revealing  the  good  things  con- 
tained in  his  Budget  was  to  be  expected,  but  to 
attribute  the  existence  of  an  agreeable  sur- 
plus to  the  success  of  the  public  works  policy  is 
to  credit  an  artificial  condition  of  things  with 
what  is  really  due  to  natural  causes.  There  has 
been  no  drought.  Australian  trade  is  booming  in 
spite  of,  not  because  of,  socialistic  government. 
Her  history  tells  us  only  too  well  that  too  much 
cannot  be  made  of  her  present  trade  activity ;  the 
next  two  or  three  years  may  witness  as  big  a  fall- 
ing off,  with  consequent  large  deficits  in  the  vari- 
ous states,  as  has  been  her  experience  in  the  past. 
It  is  not  possible  to  expect  anything  more  than 
a  spasmodic  and  short-lived  prosperity  in  any 
State  which  is  overloaded  with  debt,  on  account 
of  extravagant  public  works,  and  keeps  on  adding 
to  its  heavy  involvements.  Nor  will  the  vaunted 
* '  surpluses ' '  in  the  State  accounts  which  point  to 
this  prosperity  bear  scrutiny,  as  will  presently 

76 


THE  PUBLIC  WORKS  POLICY  OF  AUSTKALASIA 

be  shown.  Here  is  a  comparison  of  the  national 
debts  in  1904-05  of  the  United  States  and  the 
United  Kingdom,  with  the  public  debt  of  the  Com- 
monwealth and  that  of  New  Zealand,  and  the  two 
last  together: 


Country 

Popiilation 

Debt 

Per  Capita 

United  Kingdom. 

43,217,687 

$3,983,682,455 

$  91.68 

United  States .... 

76,304,000 

989,866,772 

11.91 

Australian     Com- 

monwealth   

3,988,663 

1,151,172,385 

288.60 

New  Zealand 

857,539 

299,560,000 

348.10 

Australasia 

4,846,202 

1,450,732,385 

309.66 

In  1870  the  public  debt  of  Australasia  was  only 
$150,000,000;  by  1902  it  had  jumped  to  $1,345,- 
000,000 ;  in  1905  it  was  as  above  shown ;  whilst  the 
Commonwealth's  debt  only  in  1906,  according  to 
the  federal  treasurer  (Sir  John  Forrest)  was 
$1,185,000,000.  Taking  the  figures  in  the  above 
table,  it  will  be  seen  that  the  Commonwealth,  with 
a  population  an  eleventh  part  of  that  of  the  United 
Kingdom,  has  a  debt  per  head  more  than  threefold 
that  of  the  latter  country;  with  a  population 
nearly  a  twentieth  that  of  the  United  States,  its 
debt  per  head  exceeds  the  net  American  debt 
twenty- four  times  over ;  whilst  New  Zealand,  with 
a  population  a  fiftieth  of  that  of  the  United  King- 
dom and  nearly  a  ninetieth  of  that  of  the  United 
States,  has  a  debt  per  head  which  almost  quad- 

77 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

ruples  the  British  debt  per  head,  and  is  twenty- 
nine  times  more  than  the  net  American  debt  per 
head.  More  remarkable  is  the  comparison  be- 
tween Australasia  (the  Commonwealth  and  New 
Zealand)  with  four  principal  American  states : 

state  Population  Debt  Per  Capita 

Australasia  4,846,202  $1,450,732,385  $309.66 

New  York  State  . .  7,588,259  7,498,239  0.99 

Pennsylvania    6,510,915  374,625  0.06 

Ohio  4,254,589  4,685,016  1.10 

Illinois 5,020,590  2,155,122  0.43 

This  table  presents  extraordinary  features.  We 
find  New  York  State,  with  a  population  which  by 
now  must  be  approaching  double  that  of  Austral- 
asia, confining  the  state  liability  of  each  of  its 
inhabitants  to  a  trifling  sum  of  $0.99,  whilst  the 
people  of  Australasia,  as  a  consequence  of  social- 
istic legislation,  have  each  become  involved  to  the 
tune  of  $309.66.  Pennsylvania 's  limitation  of  its 
state  debt  to  $0.06  per  capita,  by  the  accumula- 
tion of  sinking  fund  assets,  stands  out  in  still 
stronger  relief  in  contrast  with  the  Australasian 
debt ;  whilst  Ohio  and  Illinois  (both  of  whose  pop- 
ulations approximate  fairly  closely  with  that  of 
Australasia)  manage  to  go  on  and  prosper  with  a 
state  debt  which  compares  almost  as  favorably. 

78 


THE  PUBLIC  WORKS  POLICY  OF  AUSTRALASIA 

If  we  take  the  individual  debts  of  each  of  the 
six  Australian  states,  and  also  of  New  Zealand, 
and  compare  the  figures  with  the  indebtedness  of 
certain  American  states  whose  populations  more 
or  less  approximate  with  theirs,  no  less  striking 
contrasts  appear: 

state  Popxilation  Debt  Per  Capita 

New  South  Wales  . .     1,461,533    $411,609,990    $281.62 
Kansas    1,470,495  632,000  .43 

Victoria    1,210,304      257,599,810      210.27 

Maryland   1,217,174  4,942,394  4.06 

Queensland    521,655      206,322,335      395.60 

Washington   550,277  573,140  2.31 

South  Australia  . . .        372,682      143,802,725      385.79 
Vermont  345,885  362,946  1.05 

Western  Australia..        242,889        83,213,865      342.60 
Utah   289,943  450,000  3.36 

Tasmania   180,200        48,623,660      268.81 

Delaware    187,983  762,092  4.05 

New  Zealand 857,539      299,732,000      348.10 

Connecticut   940,852  1,677,964  1.78 

This  table  hardly  needs  comment.  The  reckless 
establishment  of  public  works  in  the  Australian 
states,  made  permissive  by  an  elastic  Constitution, 
and  the  constitutional  prohibition  of  a  similar 

79 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

policy  in  the  American  states,  is  too  conspicuously 
reflected  in  the  high  debt  of  the  former,  and  the 
remarkably  low  debt  of  the  latter. 

New  South  Wales,  first  and  foremost  in  the 
amount  of  its  indebtedness,  compels  attention. 
This  state,  like  others,  has  for  years  been  beset 
with  the  problem  of  the  unemployed.  By  insti- 
tuting vast  public  works  expressly  for  their  bene- 
fit, the  state  adopted  a  clumsy  expedient  in  an 
endeavor  to  correct  a  condition  of  things  for  which 
it  was  itself  directly  responsible.  Continued  legis- 
lative interference  with  the  development  of  private 
enterprise  naturally  results  in  restricting  openings 
for  the  secure  and  profitable  investment  of  capi- 
tal and  in  the  contraction  of  the  ordinary  channels 
of  employment.  As  the  State  prevented  private 
persons  from  extending  their  business  and  from 
thus  affording  work  for  the  unemployed,  a  boun- 
den  duty  was  forced  on  it  of  doing  itself  what  it 
would  not  have  others  do.  The  ordinary  chan- 
nels of  work  being  contracted,  extraordinary  chan- 
nels must  be  opened.  So  the  Public  Works  De- 
partment of  New  South  Wales,  between  1899  and 
1902,  spent  the  sum  of  £7,211,089  ($36,055,445), 
of  which  five  millions  sterling  ($25,000,000)  went 
in  wages,  representing  fully  a  million,  at  least, 
wasted  by  bad  management,  possible  only  imder 
the  system  of  day  labor  favored  by  the  state  min- 

80 


THE  PUBLIC  WORKS  POLICY  OF  AUSTEALASIA 

ister  of  works.*  This  had  the  effect  of  tempting 
men  from  private  firms  to  become  State  employes, 
thus  further  crippling  individual  enterprise  by 
depriving  it  of  labor.  But  many  of  the  under- 
takings were  designedly  "relief  works"  for  the 
unemployed,  and  these  revealed  another  seamy 
side  of  the  State  socialism  of  which  they  are  a  con- 
crete expression.  Mr.  W.  Pember  Reeves,  whilst 
an  advocate  of  the  system,  puts  his  finger  on  a 
fatal  defect  of  it  when  he  refers  ^  to  *  *  the  disheart- 
ening side  of  the  business  of  aiding  the  unem- 
ployed," and  to  the  method  of  ''making  the  work 
go  round.  .  .  .  Some  of  the  men  cannot  work, 
and  others  will  not  .  .  .  others,  again,  go  to 
work  late,  work  easily,  and  knock  off  early. '  *  He 
expresses  his  conviction  that  paying  time  wages  to 
inferior  men  on  relief  works  or  public  works  never 
has  answered  and  is  never  likely  to  answer.  ''If 
the  wages  are  very  low,"  he  remarks,  "the  re- 
sult is  cruelty;  if  they  are  normal,  money  is 
wasted. ' ' 

To  a  large  extent,  also,  is  money  similarly 
wasted  when  it  is  spent  on  projects  not  avowedly 
' '  relief  works ' '  and  undertaken  by  the  Australian 
states  with  the  object  of  becoming  large  and  regu- 
lar employers  of  manual  labor.     Such  undertak- 

*  Sydney  correspondence  of  the  * '  London  Globe, ' '  Feb.  16,  1903. 
■  * '  State  Experiments  in  Australia  and  New  Zealand.  * ' 

6  81 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

ings  are  entered  upon  merely  to  keep  myriads  of 
hands  employed  at  any  cost;  they  yield  no  profit 
in  most  cases;  they  create  a  heavy  debt 
in  all  cases;  and  much  of  the  revenue  to  be  ex- 
tracted from  them  is  required  to  meet  interest 
on  the  loans  raised.  Mr.  Pember  Reeves  quotes 
a  speech  made  in  1901  by  Mr.  0 'Sullivan,  then 
minister  of  public  works  for  New  South  Wales, 
in  which  the  latter  summed  up  a  year's  work 
of  his  department.  It  may  be  produced  here  to 
show  the  complacency  and  spirit  of  vainglory 
with  which  Australian  statesmen  regard  their  rash 
exploits  with  public  money : 

His  department  was  the  largest  industrial  organization 
in  the  southern  world,  and,  indeed,  there  were  very  few 
outside  Europe  or  America  to  compare  with  it.  Between 
19,000  and  20,000  men  were  employed,  and  he  asked  them 
to  judge  of  its  usefulness  by  the  amount  of  work  carried 
out.  During  the  last  eighteen  months  the  department 
had  constructed  eleven  lines  of  railway,  seventeen  lines 
of  tramway,  had  carried  out  102  works  with  connection 
with  harbors  and  rivers,  eighty-eight  sewage  matters, 
twenty-two  country  water  supplies,  twenty-two  schemes 
of  water  conservation,  had  erected  sixty  public  build- 
ings, 103  bridges,  had  put  down  twenty-four  artesian 
bores,  and  forty-seven  tanks  and  dams,  carrying  out  in 
all  499  important  undertakings. 

Mr.  Reeves  comments  that  Mr.  0  'Sullivan  might 
have  added  that  in  three  years  (1898-1901)  the 
department  had  spent  nearly  seven  millions  and 
a  half  of  revenue  and  loan  money. 

82 


EFFECT  OF  PUBLIC  WORKS  POLICY  OP  AUSTRALASIA 

It  might  also  be  added  that  at  June  30,  1905, 
fully  75  per  cent,  of  the  amount  of  the  public  debt 
($411,609,990)  had  been  spent  on  the  construction 
of  railways,  tramways,  telegraphs,  water  supply, 
and  sewerage  undertakings.^  The  whole  debt  is 
stated  to  bear  a  mean  rate  of  interest  of  3.57  per 
cent.,  and  thenet  return  on  these  services  for  the  year 
1904  -  5  is  credited  with  yielding  3.34  per  cent,  of 
the  cost  of  construction,  or  2.49  per  cent,  of  the  ex- 
isting public  debt,  exclusive  of  treasury  bills  in  aid 
of  deficiency  of  revenue.  According  to  this  state- 
ment, the  public  works  not  only  do  not  yield 
a  sufficient  return  to  meet  the  interest  on  the 
whole  public  debt,  but  do  not  earn  enough  to  pay 
the  interest  on  the  loans  raised  in  respect  of 
them. 

It  must  be  admitted  that  a  surplus  of  3.34  per 
cent.,  after  expenditure  has  been  deducted  from 
gross  revenue,  is  a  fair  showing,  and  could  almost 
meet  or  even  more  than  meet  the  whole  interest 
incurred  on  the  cost  of  construction  if  the  State 
had  to  pay  less  than  3.57  per  cent,  on  the  latter. 
But  it  all  depends  on  how  the  surplus  is  arrived 
at.  Turning  to  the  finances  of  New  South  Wales 
for  the  present  year  (1906),  a  surplus,  ''as  the 
politicians  put  it,"^  of  £896,124  ($4,480,620)  is 
announced.     The    journal    named,    in    an    arti- 

*"The  Statesman's  Year  Book,"  1906. 
"'Sjdney  Bulletin,"  Ang.  30,  1906. 

83 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

cle  headed  ''Works  Funds,  Surpluses  and  Other 
Swindles,"  searehingly  examines  the  items  set 
out  as  revenue,  and  ascertains  that  a  number  of 
them  are  nothing  more  or  less  than  the  liquida- 
tion of  State  assets,  such  as  sales  of  land,  prop- 
erty and  timber,  which  should  not  enter  into  reve- 
nue at  all,  but  be  credited  to  capital  or  loan  ac- 
count. The  surplus  is  further  swelled  by  debit- 
ing to  loans  or  capital  account  a  considerable 
amount  of  expenditure  really  made  on  revenue 
account.  The  proceeds  of  land  sales,  misap- 
plied to  revenue,  is  put  at  about  £900,000  ($4,500,- 
000)  a  year,  a  sum  which,  were  it  applied  to  re- 
duction of  the  public  works  debt,  would  convert 
the  surplus  obtained  by  its  inclusion  in  the  reve- 
nue account  into  a  big  deficit.  But  as,  we  are  told, 
the  amount  of  borrowed  money  spent  in  the  finan- 
cial year  1905-6  was  £1,282,995  ($6,422,975),  the 
total  debt  would  not,  with  that  addition  to  it,  be 
relieved  by  the  credit  of  the  proceeds  of  land 
sales;  the  effect  of  such  a  credit  would  not  even 
be  a  decrease  in  the  increase  of  the  debt,  when  the 
latter  is  also  loaded  with  debits  which  should  be 
charged  to  revenue.  Hence  a  proper  observance 
of  accounting  principles  fails  to  be  helpful  to  the 
state  treasurer  anxious  to  show  that  the  net  re- 
turn on  public  works  constitutes  nearly  the  whole 
interest  incurred  on  loans  raised  for  construction. 

84 


THE  PUBLIC  WOEKS  POLICY  OF  AUSTRALASIA 

The  surplus  vanishes;  the  relief  of  the  growing 
public  debt  is  not  sufficient  to  reduce  it.  The 
''Sydney  Bulletin"  thus  assails  Mr.  Carruthers, 
the  New  South  Wales  treasurer,  for  employing 
such  methods : 

To  the  bad  tricks  he  took  over  from  his  predecessors 
he  has  added  some  of  his  own.  He  knows  the  virtues  of 
a  surplus  for  advertising  purposes;  and  there  are  few 
things  easier  than  to  *  *  fake ' '  a  surplus.  All  that  has  to 
be  done  is  to  convert  enough  assets  into  cash  and  use  it 
as  revenue,  and  on  the  other  side  charge  enough  expendi- 
ture to  capital  account.  The  rottenest  business  in  Syd- 
ney could  produce  a  good  profit  and  loss  balance  in  that 
way.  The  trouble  in  a  private  concern  would  be  that 
the  fraud  would  have  to  end  in  a  few  years  when  con- 
vertible assets  ran  out  and  new  capital  refused  to  come 
in ;  but  with  a  new  country  to  play  with,  the  fraud  may 
last  a  century.  Yet  there  is  an  end  to  even  the  biggest 
estate,  and  there  is  a  limit  to  tax-bearing  capacity  of 
even  the  richest  people. 

By  the  adoption  of  the  same  accounting  prac- 
tises a  surplus  in  the  coming  year  is  apparently 
looked  for.  The  journal  I  have  quoted  winds  up 
a  trenchant  criticism  by  the  pronouncement  that 
it  will  be 

a  purely  comic-opera  surplus ;  but,  unfortunately,  it  will 
have  this  effect— it  will  make  borrowing  easier;  for  the 
vast  crowd,  both  at  home  and  in  Europe,  who  won't 
take  the  trouble  to  understand  the  fake,  will  stare  open- 

85 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

mouthed  at  an  annual  surplus.  And  those  at  home  will 
be  more  willing  to  go  in  for  another  loan-drunk  on  the 
strength  of  their  "prosperity,"  and  those  abroad  will 
be  more  ready  to  accommodate  them. 

To  turn  from  the  State  to  the  municipality  in 
New  South  "Wales,  and  glance  at  the  manner  in 
which  the  finances  of  the  suburbs  are  handled  only 
strengthens  the  belief  in  the  unfitness  of  the 
greater  or  lesser  authority  to  conduct  public 
works.  Their  financial  exploits  on  their  respec- 
tive planes  are  well  matched.  In  1904  the  expen- 
diture of  the  city  of  Sydney  was  $1,000,000  over 
and  above  its  revenues;  its  suburbs  and  the  bor- 
oughs and  districts  beyond  also  spent  more  than 
they  received.^  Municipal  loans  in  that  year 
stood  at  nearly  $15,000,000.  The  Sydney  Bul- 
letin,2  having  severely  scrutinized  the  State  ac- 
counts, has  the  following  free  remarks  to  make  of 
the  municipalities : 

The  N.  S.  Wales  alderman  has  just  as  little  idea  of 
getting  his  town  hall  out  of  pawn  as  J.  Carruthers  has 
of  getting  his  State  out :  and  almost  the  greatest  sinners 
of  all  are  the  suburban  mayors  and  aldermen,  who 
should  n't  exist  at  all,  and  who  should  n't  be  possessed 
of  any  town  halls  to  pawn.  These  suburbs  owe  £764,819, 
besides  overdrafts,  and,  ruling  out  Marrickville  and 
Ryde,  all  that  the  whole  thirty-eight  of  them  put  up  last 

***The  Statesman's  Year  Book,"  1906. 

•  Sept.  7,  1906. 

86 


THE  PUBLIC  WORKS  POLICY  OF  AUSTRALASIA 

year  in  the  way  of  sinking  fund  was  £397.  Ryde  and 
Marrickville  put  up  £1,400  between  them.  This  pre- 
cious crowd,  nevertheless,  paid  £34,041  in  interest.  Here 
and  there  a  suburban  council  paid  off  an  odd  hundred 
or  two,  mostly  because  it  was  squeezed  into  it,  or  be- 
cause a  bailiff  arrived  and  threatened  to  stay ;  but,  as  a 
rule,  when  the  councils  paid  £1  they  borrowed  £2.10s., 
so  the  situation  got  worse  instead  of  better.  The  Syd- 
ney suburban  mayor's  and  alderman's  idea  of  honest 
and  decent  finance  can  best  be  reckoned  by  the  fact 
that,  though  thirty-nine  of  the  suburban  municipalities 
are  in  pawn  (the  fortieth  is  in  pawn,  but  only  on  an 
overdraft)  no  more  than  four  of  the  whole  shiftless, 
drifting  crowd  have  sinking-funds  for  the  systematic 
repajnnent  of  their  debts. 

The  recent  financial  history  of  Western  Aus- 
tralia is  thus  surveyed  by  the  same  journal  :^ 

The  State  has  had  a  royal  time  for  about  sixteen 
years,  and  that  time  shows  signs  of  not  lasting  forever. 
In  1891  Westralia  owed  only  £30  per  head  of  a  very 
small  population;  now  it  owes  £67  per  head  of  a  much 
larger  one.  There  have  been  some  years  when  the 
amount  borrowed  equaled  the  amount  raised  by  all 
forms  of  taxation.  There  were  one  or  two  gorgeous 
years  when  the  amount  borrowed,  if  it  had  been  divided 
equally  among  the  population,  would  have  enabled 
everybody  to  live  in  a  humble  but  honest  fashion  with- 
out doing  any  work  at  all.  In  a  handful  of  years 
Westralia  exhausted  most  of  its  borrowing  powers,  and 
it  has  now  to  go  very  slow  in  the  matter  of  loans.  The 
railways  in   1896,  at  the  summit  of  the  boom,  were 

»S6pt.  7,1906. 

87 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

alleged  to  yield  11^  per  cent,  profit— largely  through 
charging  repairs  to  loans ;  this  was  down  to  4|  per  cent, 
by  1899  and  is  now  only  about  3^  per  cent.  Westralia 
learned  so  thoroughly  how  to  have  a  good  time  that  in 
1898  it  had  a  revenue  of  nearly  £17  per  inhabitant  and 
spent  nearly  £20.  Other  States  could  live  on  a  revenue 
of  £6  or  £8  per  head,  and  even  scratch  out  a  surplus; 
Westralia  had  got  into  such  an  imperial  frame  of  mind 
that  it  spent  a  revenue  of  £17  and  had  over  £500,000 
deficit  on  top  thereof.  Of  course  this  incredible  revenue 
could  n't  last;  the  gold  is  fading,  the  loans  are  fading, 
the  days  of  riotous  eating  and  hilarious  drinking,  and 
the  times  when  nobody's  accounts  were  audited  and 
nearly  everybody  helped  himself,  are  passing  away." 

It  is  not  possible  to  read  these  extracts  from  re- 
sponsible statesmen  and  newspapers  without  re- 
alizing that  the  dead-lock  of  debt  now  holding 
down  Australia  is  due  to  a  deep-seated  demoral- 
ization of  public  life.  Financial  chaos  has  been 
more  or  less  rife  for  the  past  twenty  years;  it 
arose  from  the  moment  the  initiation  of  a  ruinous 
public-works'  policy  was  made,  and  will  continue 
while  (to  echo  the  words  of  Mr.  G.  H.  Reid,  leader 
of  the  Opposition  in  the  New  South  Wales  Par- 
liament) 'Hhe  seat  of  a  man  in  Parliament  de- 
pended upon  how  much  money  he  could  abstract 
from  the  public  treasury  for  carrying  out  works 
in  his  electorate  in  the  most  reckless  and  improvi- 
dent fashion.  "1 

*" Sydney  Morning  Herald,"  April  4,  1904. 

88 


THE  PUBLIC  WOBKS  POLICY  OF  AUSTEALASIA 

Australia  at  the  beginning  did  great  things  by 
the  pursuit  of  a  policy  of  freedom,  promoting— as 
in  the  mother  country,  before  municipalism  de- 
veloped—unhampered scope  for  individual  energy. 
It  is  the  more  remarkable,  therefore,  that  its  peo- 
ple should  have  allowed  the  firm  establishment 
of  socialistic  principles,  which  predicate  a  mis- 
trust of  an  individual's  power  to  manage  his  own 
affairs.  No  program  such  as  has  been  outlined 
could  otherwise  find  support  or  adoption.  Con- 
sciously or  unconsciously,  a  people  which  upholds 
the  State  as  a  fetish  has  no  belief  in  itself  as  a  com- 
munity of  persons.  After  becoming  a  great  col- 
ony, founded  on  individual  liberty,  Australia  has 
transferred  its  allegiance  to  an  impersonal  ab- 
straction—the State— obsessed  by  the  idea  that 
the  State  can  better  continue  and  finish  what  the 
individual  began.  Democracy  and  bureaucracy 
are  as  wide  asunder  as  the  poles;  yet  Australia 
has  tried  to  blend  them. 

How  has  this  paradoxical  pursuit  of  a  policy 
of  extreme  democracy,  side  by  side  with  an  ex- 
treme disbelief  in  the  wisdom  of  the  individual, 
justified  itself  in  the  vicissitudes  of  the  colony?  It 
lacks  population ;  the  birth-rate  is  shrinking ;  there 
is  a  restraint  on  immigration.  Here  we  have  a 
large  slice  of  the  planet 's  surface,  only  a  little  less 
in  area  than  the  United   States,  within  whose 

89 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

boundaries  whole  kingdoms  could  be  packed,  whose 
natural  wealth  and  climatic  conditions  are  unsur- 
passed, which  could  easily  support  a  population  of 
100,000,000  souls,  yet  so  little  used  and  so  nearly 
vacant,  withal  so  rich  and  tempting,  that,  after 
120  years  of  colonization,  its  population  is  no  more 
than  that  of  the  London  suburbs. 

The  domination  of  the  Labor  Party  is  clearly 
responsible  for  the  stopping  of  the  clock  of  pro- 
gress in  Australia.  Socialism  has  created  a  na- 
tional selfishness  and  exclusiveness  which  may  be  lik- 
ened to  the  once  obstinate  insularity  of  China.  Like 
China,  Australia  fears  the  foreigner,  whether  he 
be  of  its  own  or  any  other  color.  The  pursuit  of 
the  narrow  ideal  of  a  socialistic  community,  pro- 
tected by  a  legislative  wall,  wherein  the  individual 
is  extinct,  and  the  State  all-in-all,  is  hardly  fa- 
vorable to  the  realization  of  Tennyson's  dream  of 
the  ''Parliament  of  Man,  the  Federation  of  the 
World, ' '  toward  which,  it  is  charitable  to  believe, 
the  nations  of  the  earth  would  slowly  move  as  the 
centuries  pass  if,  in  their  progress  toward  that 
goal,  such  social  diseases  as  at  present  afflict 
Australia  and  are  incipient  in  other  countries 
could  be  exterminated. 


90 


CHAPTER  V 

THE    REFLECTIONS    OF    OTHER    MINDS 

John  Boyd  Thatcher,  when  Mayor  of  Albany  .  .  .  Herbert  Spen- 
cer ..  .  John  Stuart  Mill  ...  Sir  Francis  Bacon  .  .  .  Hon. 
Charles  N.  Lawrence  (deputy  chairman,  London  &  North  West- 
ern Kailway)  .  .  .  Aristotle  and  Mill  on  the  consequences  of  a 
State  or  Municipal  Government  minding  everybody's  business 
.  .  .  The  Eight  Hon.  A.  J.  Balfour,  late  Premier  of  Great 
Britain. 

THE  condition  of  Russia  and  Australia  proves 
the  folly  of  acting  upon  the  principle  of  *  *  no 
finality  to  municipal  enterprise."  England  will 
have  more  difficulty  in  finding  the  safe  road  than 
the  United  States— that  is,  if  America  can  only 
hold  municipal  ambition  down  to  the  non-profit- 
producing  undertakings.  Mr.  John  Boyd  Thatcher, 
when  mayor  of  Albany,  once  said,  when  speaking 
on  this  subject:  *'If  the  city  may  do  those  things 
for  the  individual  which  he  cannot  do  for  himself, 
may  it  do  for  him  those  things  which  he  finds  it  in- 
convenient to  do  for  himself?  If  it  may  care  for  his 
safety  and  health,  may  it  also  care  for  his  morals 
and  his  comforts?  If  it  may  build  him  an  acad- 
emy to  educate  a  sound  mind,  may  it  build  him  a 

91 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

gymnasium  to  develop  a  sound  body?  If  it  build 
him  a  gymnasium  to  train  his  muscles,  may  it 
erect  an  arena  to  test  his  prowess  ?  If  it  publish 
police  rules  and  regulations  for  his  conduct,  may 
it  establish  an  ethical  college  to  teach  him  the 
foundation  of  obligation?  If  it  may  teach  him 
ethics,  may  it  teach  him  religion?  And  may  all 
these  things  be  done  at  the  public  expense  ?  Here 
our  vessel  breaks  from  its  moorings  and  drifts 
toward  the  beautiful  but  dangerous  coast  of  pa- 
ternal government."  These  words  are  quoted  be- 
cause they  summarize  the  arguments  with  which 
we  are  met  every  day.  Those  who  believe  in  and 
want  paternal  government  and  socialism  frankly 
tell  us  that  they  favor  the  whole  socialistic  pro- 
gram—that a  city  should  conduct  all  functions, 
from  the  worship  of  the  Almighty  down  to  the 
manufacture  of  tooth-brushes.  Those  who  do  not 
believe  in  socialism  and  yet  persist  in  enlarging 
the  sphere  of  municipal  trading  should  realize 
that,  by  the  destruction  of  individual  effort,  they 
are  rapidly  undermining  the  very  foundations  of 
their  country's  strength  and  greatness. 

The  State's  function  is  to  give  every  man  an 
opportunity  to  do  business  under  a  stable  gov- 
ernment. The  question  will  be  asked :  ' '  Is  it  safe 
to  trust  municipalities  to  do  all  these  things  at 
the  public  expense?"    In  spite  of  the  cry,  ''No 

92 


THE  EEFLECTIONS  OF  OTHEE  MINDS 

finality  to  municipal  enterprise,"  there  will  be 
finality  when,  as  Mr.  Thatcher  suggests,  the  ves- 
sel of  Municipal  Trading  '' breaks  from  its  moor- 
ing and  drifts  toward  the  alluring  but  dangerous 
coast  of  paternal  government. ' ' 

Russia  and  Australia  seem  to  have  hesitatingly 
drifted  to  that  extreme.  Are  the  United  States 
and  the  United  Kingdom  prepared  steadily  to 
drift  in  the  same  direction?  Are  we  even  pre- 
pared for  the  German  system  of  centralization? 
Even  if  it  is  possible  to  show  that  the  experience 
of  many  cities  proves  that  Municipal  Ownership 
and  management  of  common  utilities  may  be  suc- 
cessful and  of  immediate  advantage  to  the  public 
under  some  conditions,  does  that  close  the  case 
in  favor  of  Municipal  Trading?  Far  from  it.  Is 
not  this  advantage  reaped  at  the  expense  of  the 
future?  Do  not  the  economic  undertakings  of 
governments  only  emphasize  the  failure  of  gov- 
ernments to  govern?  Herbert  Spencer  has  told 
us  that  every  additional  State  interference 
strengthens  the  tacit  assumption  that  it  is  the  duty 
of  the  State  to  deal  with  all  evils  and  secure  all 
benefits.  I  have  shown  that  in  Russia  the  increasing 
power  of  a  growing  administrative  organization 
is  accompanied  by  a  decreasing  power  of  the  rest 
of  society  to  resist  its  further  growth  and  con- 
trol.   It  was  said  of  Count  Witte,  when  finance 

93 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

minister,  that  he  loved  industry,  but  he  loved  pat- 
ronage still  more,  and,  if  two  oflScials  could  do  the 
work  of  one,  so  much  the  better.  The  infinitely 
elastic  revenue  would  provide  for  them,  and  the 
more  officialdom  means  more  government  and  less 
people— which  illustrates  precisely  the  general 
principles  laid  down  by  Spencer  when  he  says : 

The  people  at  large,  led  to  look  on  benefits  received 
through  public  agencies  as  gratis  benefits,  have  their 
hopes  continually  excited  by  the  prospects  of  more.  A 
spreading  education,  furthering  the  diffusion  of  pleas- 
ing errors  rather  than  of  stern  truths,  renders  such 
hopes  both  stronger  and  more  general.  Worse  still, 
such  hopes  are  ministered  to-  by  candidates  for  public 
favor  by  countenancing  them. 

Mr.  Shaw  strenuously  advocated  such  errors, 
it  might  be  said,  when  he  submitted :  ' '  And  if  the 
English  citizen  chooses  to  supply  himself  with  elec- 
tric, pneumatic,  or  hydraulic  power,  light  rail- 
ways or  tramways,  stores  for  municipal  paving 
or  forage  for  municipal  horses,  cottages  and  block 
dwellings,  light  and  heat,  with  fittings  and  stores, 
and  indeed  any  commodity  whatsoever,  at  cost 
price,  with  capital  costing  only  three  or  four  per 
cent,  on  the  joint  credit  of  himself  and  his  fellow 
ratepayers,  he  must  not  be  forbidden."  This  is 
exactly  the  same  argument  that  was  used  by  Count 
Witte  in  relation  to  the  Russian  citizen,  realizing 

94 


THE  EEFLECTIONS  OF  OTHER  MI>(DS 

that  this  municipal  enterprise  was  destined  to 
play  admirably  into  his  hands. 

The  limits  of  the  province  of  government  have 
been  clearly  defined  by  John  Stuart  Mill  in  his 
''Principles  of  Political  Economy,"  and  were 
they  observed  by  present-day  governments,  the 
evils  which  follow  in  the  train  of  the  policy  fol- 
lowed by  Count  Witte,  and  approved  by  Mr.  Ber- 
nard Shaw,  would  not  exist.  "The  true  reasons," 
says  Mill,  "in  favor  of  leaving  to  voluntary  as- 
sociations all  such  things  as  they  are  competent 
to  perform,  would  exist  in  equal  strength  if  it 
were  certain  that  the  work  itself  would  be  as  well 
if  not  better  done  by  public  officers. ' '  These  rea- 
sons he  thus  states :  * '  The  mischief  of  overburden- 
ing the  chief  functionaries  of  government  with  de- 
mands on  their  attention  and  diverting  them  from 
duties,  which  they  alone  can  discharge,  to  objects 
which  can  be  sufficiently  well  attained  without 
them ;  the  danger  of  unnecessarily  swelling  the  di- 
rect power  and  indirect  influence  of  government, 
and  multiplying  occasions  of  collision  between 
its  agents  and  private  citizens ;  and  the  inexpedi- 
ency of  concentrating  in  a  dominant  bureaucracy 
all  the  skill  and  experience  in  the  management  of 
large  interests,  and  all  the  power  of  organized 
action,  existing  in  the  community— a  practice 
which  keeps  the  citizens  in  a  relation  to  the  gov- 

95 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

ernment  like  that  of  children  to  their  guardians, 
and  is  a  main  cause  for  the  inferior  capacity  for 
political  life  which  has  hitherto  characterized  the 
over-governed  countries  of  the  Continent,  whether 
with  or  without  the  form  of  representative  gov- 
ernment. ' ' 

Mill  concedes,  however,  as  we  all  do,  that  volun- 
tary associations  should  not  perform  their  work 
entirely  uncontrolled  by  the  government.  ''The 
community  needs  some  other  security  for  the  fit 
performance  of  the  service  than  the  interest  of 
the  managers;  and  it  is  the  part  of  government 
either  to  subject  the  business  to  reasonable  con- 
ditions for  the  general  advantage,  or  to  retain 
such  power  over  it  that  the  profits  of  the  monop- 
oly may  at  least  be  obtained  for  the  public. ' '  He 
also  holds  that  in  the  event  of  a  State  becoming 
the  proprietor  of  canals  or  railways,  they  will  al- 
most always  be  better  worked  by  a  company  rent- 
ing the  railway  or  canal  for  a  limited  period  from 
the  State. 

Long  before  Mill,  another  great  thinker— Bacon 
—said:  ''Of  ambitions,  it  is  less  harmful  the 
ambition  to  prevail  in  great  things  than  to  appear 
in  everything,  for  that  breeds  confusion  and  mars 
business"— a  truism  which,  it  has  been  suggested, 
should  be  inscribed  over  the  entrance  to  the  new 
county  hall  of  the  London  County  Council,  and, 

96 


THE  REFLECTIONS  OF  OTHER  MINDS 

with  equal  propriety,  might  appear  outside  the 
town  hall  of  every  municipality  in  the  United 
Kingdom  as  pointing  the  way  to  true  local  gov- 
ernment. 

If  Bacon's  sage  advice  is  to  be  ignored,  we  may 
ask,  with  the  Hon.  Charles  N.  Lawrence,  speaking 
at  a  meeting  of  the  Imperial  Industries  Club  held 
in  London :  ^  '  *  On  what  altar  is  this  hecatomb  of 
the  business  community  to  be  sacrificed,  unto  what 
end  is  this  revolution  to  be  effected?  Private 
enterprise,  it  would  seem,  is  to  perish  in  order  that 
the  dreams  of  Karl  Marx  and  Lassalle  and  Henry 
George  may  be  realized,  in  order  that  the  means 
of  production  and  distribution  and  transit  and 
what-not  may  become  communistic  property. 
These  dreams  are  older  than  Karl  Marx;  these 
dreams  were  dreamed,  and  these  fallacies  con- 
futed, long  before  the  advent  of  the  Christian 
era.  In  Plato's  '* Republic"  is  a  sketch  of  a  so- 
cialistic State  carried  out  with  such  ruthless  logic 
that  even  the  entire  population  of  marriageable  fe- 
males was  to  be  merged  in  the  joint-stock  assets  of 
the  commonwealth.  Sparta  was  organized  ona  mjDre 
or  less  collective  basis,  somewhat  imperfect,  it  is 
true,  in  that  a  helot  class  had  to  be  kept  to  do  the 
work,  and  short-lived  largely  in  consequence  of 
this  defect  of  its  qualities.    The  likeness  between 

»"RaUway  News,"  Nov.  18,  1905. 
7  97 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

those  days  and  the  present  is  not  wanting.  Eng- 
land also  has  a  helot  class,  though  they  live  in  Park 
Lane;  she  also  has  a  Lycurgus/  though  he  hails 
from  Battersea,  and  Mr.  Bernard  Shaw's  ''Super- 
man" seems  cast  for  the  role  of  a  latter-day 
Plato.  But  if  the  fallacies  are  old,  so  also  is  their 
confutation.  Let  me  quote  a  short  extract  from 
the  well-known  passage  in  Aristotle's  ''Politics," 
in  which,  with  the  incisive  common-sense  of  his 
wisdom,  he  criticizes  Plato's  socialistic  proposals. 
It  has  a  direct  bearing  on  the  question  of  munici- 
pal ownership.  He  points  out  that  what  is  every- 
body's business  is  nobody's  business,  and  says, 
"A  maximum  number  of  owners  involves  a  mini- 
mum of  care  for  the  joint  property.  People  pay 
most  attention  to  their  private  concerns ;  for  those 
which  they  have  to  share  with  others  they  care 
less,  or,  at  any  rate,  only  to  the  extent  to  which 
each  has  a  personal  interest  therein;  for,  apart 
from  all  other  considerations,  they  are  apt  to  neg- 
lect such  business,  on  the  supposition  that  some 
one  else  is  attending  to  it,  just  as  in  domestic  ser- 
vice the  more  servants  you  have  the  less  efficiently 
the  work  is  generally  done." 

Reverting  to  Mill,  such  a  state  of  things  has 
also  drawn  him,  in  his  well-known  work  ' '  On  Lib- 

*  The  reference  is  to  Mr.  John  Bums,  president  of  th«  Local 
Government  Board. 

98 


THE  REFLECTIONS  OF  OTHER  MINDS 

erty,"  to  speak  of  the  consequences  of  a  State  or 
of  a  municipal  government  minding  everybody's 
business.  His  observations  cannot  be  too  often 
quoted.  ' '  Every  function, ' '  he  says,  * '  superadded 
to  those  already  exercised  by  the  government, 
causes  its  influence  over  hopes  and  fears  to  be 
more  widely  diffused,  and  converts,  more  and 
more,  the  active  and  ambitious  part  of  the  public 
into  hangers-on  of  the  government.  If  the  em- 
ployees of  all  these  diiterent  enterprises  were  ap- 
pointed and  paid  by  the  government,  and  looked 
to  the  government  for  every  rise  in  life,  not  all 
the  freedom  of  the  press,  and  popular  constitu- 
tion of  the  legislature,  would  make  this  or  any 
other  country  free,  otherwise  than  in  name." 

*'To  be  admitted  into  the  ranks  of  this  bureau- 
cracy," he  continues,  ''and,  when  admitted,  to 
rise  therein,  would  be  the  sole  objects  of  ambition. 
Under  this  regime,  not  only  is  the  outside  public 
ill-qualified,  for  want  of  practical  experience,  to 
criticize  or  check  the  mode  of  operation  of  the 
bureaucracy,  but  even  if  the  accidents  of  despotic 
or  the  natural  working  of  popular  institutions  oc- 
casionally raise  to  the  summit  a  ruler,  or  rulers,  of 
reforming  inclinations,  no  reform  can  be  effected 
which  is  contrary  to  the  interests  of  the  bureau- 
cracy. Such  is  the  melancholy  condition  of  the 
Russian  Empire,  as  shown  in  the  accounts  of  those 

99 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

who  have  had  sufficient  opportunity  of  observa- 
tion. The  Czar  himself  is  powerless  against  the 
bureaucratic  body.'* 

Finally,  let  me  quote  a  philosopher  and  states- 
man who  is  known  to  us  all,  and  who,  by  his  dis- 
tinguished career,  is  more  qualified  than  most  to 
obtain  a  clear  perspective  of  the  course  whither 
modern  municipalism  is  tending.  I  refer  to  Mr. 
Balfour.  When  prime  minister  of  England  in 
1903,  he  advocated,  and  Parliament  subsequently 
ordered,  the  appointment  of  the  second  select  com- 
mittee to  inquire  into  Municipal  Trading  to  which 
I  have  more  than  once  had  occasion  to  refer.  *'I 
should  like, ' '  he  said  in  the  House  of  Commons  in 
the  course  of  the  debate  arising  therefrom,  ' '  each 
individual  member  of  the  House  to  ask  himself 
this  question,  among  others :  Can  we  view  with  ab- 
solute serenity  an  indefinite  increase  in  the  posi- 
tion of  the  municipality  as  an  employer  of  labor 
among  its  own  constituents?  I  do  not  feel  abso- 
lutely sure  of  that.  I  know  something  about  the 
phenomenon  as  it  affects  this  House.  I  know  that 
there  are  no  questions  more  perplexing  and  more 
dangerous  than  those  which  arise  when  members 
are  returned  to  this  House  by  constituents  paid 
by  the  State.  I  know  that  that  is  a  danger  here, 
and  it  is  a  danger  which  makes  me  look  with  great 
suspicion  and  dislike  on  any  very  large  extension 
of  employment  by  the  community  as  a  whole. 

100 


THE  REFLECTIONS  OF  OTHER  MINDS 

What  is  a  danger  in  this  House  I  am  convinced 
may  be  a  danger  to  municipal  bodies,  and  they 
may  be  tempted  by  the  pressure  of  their  own  con- 
stituents to  a  course  of  action  which  may  not  be 
wholly  for  the  common  good.  That  is  one  danger, 
which,  I  think,  ought  not  to  be  ignored  by  any  man 
who  looks  at  the  question  in  the  sober  light  of 
dry  reason." 

Again  speaking  of  the  speculative  risks  of  these 
commercial  undertakings  which  municipalities  are 
assuming,  Mr.  Balfour  said :  *  *  Can  any  one  feel  the 
same  kind  of  certainty  when  you  leave  road-pav- 
ing and  water-supply,  and  come  to  such  matters 
as  gas-supply— in  which,  I  admit,  municipalities 
have  been  conspicuously  successful?  Can  any- 
body say  with  certainty  that  gas,  even  in  the  near 
future,  will  retain  its  place  as  a  source  of  light 
and  heat  power?  I  am  not  sure  of  it.  When  I 
come  to  such  things  as  tramway  expenditure,  my 
doubts  increase.  With  the  great  changes  that  are 
now  going  on  in  road  locomotion,  who  will  say  that 
a  fixed  line  of  tramway— embarrassing  as  it  is  to 
every  other  form  of  street  locomotion— is  to  be 
permanent  and  the  form  in  which  you  can  best  get 
improved  transit  from  one  part  of  a  great  city 
to  another,  still  less  from  the  center  to  the  out- 
skirts? I  do  not  look  with  absolute  confidence 
upon  the  future  of  these  enormous  commercial 
undertakings  in  which  the  municipalities  have  been 

101 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

engaged.  If  you  leave  these  matters  to  private 
enterprise,  and  inventions  render  antiquated  the 
works  upon  which  vast  capital  has  been  expended 
by  a  private  company,  what  happens?  The  com- 
pany becomes  bankrupt  or  winds  up  its  affairs, 
and  a  new  and  improved  system  takes  the  place 
of  the  old  system.  But,  supposing  a  municipality 
has  embarked  an  enormous  amount  of  the  rate- 
payers' capital  in  improved  transit,  such  as  an 
overhead  electrical  system— or  let  it  be  granted 
that  the  municipality  may  have  spent  its  money 
wisely  at  the  time  on  whatever  may  be  considered 
the  most  advanced  form  of  electrical  transit— 
then,  suppose  that  a  method  far  better  and  cheaper 
is  invented,  how  painful  would  be  the  dilemma  of 
these  authorities!  Are  they  to  confess  that  they 
have  wasted  millions  of  the  ratepayers'  money 
in  the  past,  and  are  they  to  reconstruct  their 
works!  Or  are  they  to  saddle  their  municipali- 
ties for  all  time  with  methods  and  inventions 
which  are  old-fashioned  and  worn  out  ? ' ' 

Here  Mr.  Balfour  touched  upon  the  underlying 
fallacy  on  which  British  Municipal  Trading  is 
based.  The  ordinary  councilor  indignantly  repu- 
diates the  term  ''Municipal  Trading."  Trading 
implies  risk,  and  he  will  acknowledge  no  risk.  His 
professed  policy  is  simply  to  deal  in  permanently 
standardized  methods  of  supplying  public  neces- 
saries, and  he  makes  no  allowances  for  the  diabol- 

102 


THE  EEFLECTIONS  OF  OTHER  MINDS 

ical  restlessness  of  human  invention.  If  he  could 
have  had  a  fore-glimpse  of  the  development  of 
electric  lighting,  for  instance,  he  would  certainly 
never  have  gone  into  the  gas  business  a  genera- 
tion ago.  Again,  many  towns  would  have  cheer- 
fully left  electric  lighting  to  private  sjmdicates  if 
their  governors  had  known  what  a  fierce  competi- 
tion the  cheap  English  gas  was  going  to  be  when 
the  introduction  of  the  Welsbach  incandescent 
burner  and  mantle  came  about.  This  artless  and 
bland  acceptance  of  the  present  as  an  eternal  fix- 
ture, and  the  utter  lack  of  intelligent  anticipation, 
are  always  deluding  the  British  municipalist.  He 
started  to  run  tramways  on  the  distinct  under- 
standing that  this  was  merely  a  means  of  convey- 
ing passengers  from  the  city  to  the  near  suburbs, 
and  he  is  seriously  annoyed  to  find  now  that  his 
scheme  of  lines  and  cars  is  liable  to  become 
little  more  than  a  side-track  of  an  interurban 
transit  company. 

It  will  be  seen  that  Mr.  Balfour,  in  his  reference 
to  municipalities  undertaking  transit  schemes 
which  may  have  this  inglorious  fate  at  the  bidding 
of  ''constituents"  paid  by  the  State  (otherwise 
municipal  employes),  points  to  a  danger  which 
did  not  escape  the  observation  of  Spencer  and 
Mill  in  their  day— a  danger  very  manifest  in 
Great  Britain  at  the  present  time. 


103 


CHAPTER  VI 

A  POWER  TO  BE  RECKONED  WITH 

The  bestowal  of  voting  power  on  a  parasitic  class  .  .  .  Eussia's 
disbelief  in  wisdom  of  the  proletariat  .  .  .  Ultimate  fate  of 
British  municipalism  .  .  .  Revolt  of  the  property  classes  a  possi- 
bility .  .  .  Municipal  egotism  .  .  .  Popularity  of  trading  in 
England  fanned  by  the  Socialists  .  .  .  Glasgow,  an  over-muni- 
cipalized city  .  .  .  Municipal  candidates'  concern  for  votes  of 
Municipal  employes  .  .  .  Their  number  and  voting  strength  in 
Great  Britain  .  .  ,  Their  disenfranchisement  advocated  even  by 
Municipal  traders  .  .  .  Useless  public  works  entered  upon  to  aid 
unemployed  out  of  the  taxes  .  .  .  Unskilled  labor  swells  Muni- 
cipal pay-rolls  .  .  .  Cost  of  such  relief  .  .  .  Dependence  of  work- 
ing-class on  municipalities  for  employment  .  .  .  Pension  attrac- 
tions .  .  .  Taxpayers  mulcted  to  provide  for  growing  superannua- 
tion funds  .  .  .  Outcome  of  whole  policy  the  same  alike  in  Great 
Britain,  Australia  and  Russia. 

WHEN  we  come  to  reflect  that  in  countries  like 
the  United  Kingdom  and  the  United  States, 
a  bureaucracy  such  as  described  by  Mill  would, 
unlike  the  Russian  system,  stand  or  fall  by  the 
votes  of  the  ' '  hangers-on, ' '  we  have  to  realize  the 
possible  outcome  of  the  bestowal  of  voting  power 
upon  a  parasitic  class.  Russia,  in  her  blind  way, 
having  once  honeycombed  and  linked  up  her  vast 
provinces  with  a  subtle  system  of  officialdom,  has 
been  wise  enough  to  see  that  the  only  chance  of 

104 


A  POWER  TO  BE  RECKONED  WITH 

its  preservation  lies  in  confining  power  to  the  up- 
per and  withholding  it  from  the  lowest  strata  of 
society.  The  sole  justification  for  the  repression 
of  her  masses  lies  in  her  belief,  rightly  or  wrongly, 
that  power  is  not  likely  to  be  more  abused  if  vested 
in  the  superior  classes  than  if  exercised  by  the  pro- 
letariat. There  is  the  same  human  nature  at  both 
ends. 

Municipal  traders  in  other  countries  over- 
look that  unalterable  fact.  The  ultimate 
fate  of  British  municipalism  as  it  is  now 
shaping  depends  upon  the  course  it  will  take 
when  once  it  is  entirely  at  the  mercy  of  the  social- 
ists, who,  as  much  swayed  by  cupidity  and  love  of 
personal  power  as  the  feudal  lords  of  old,  are  mov- 
ing and  will  continue  to  move  heaven  and  earth 
to  capture  its  administrative  machinery.  The 
rising  of  the  masses  is  a  frequent  event  in  the  his- 
tory of  nations ;  but  one  does  not  read  of  the  rising 
of  the  classes  above  them.  The  English  property 
classes  are  hardly  likely  to  take,  lying  down,  the 
gradual  confiscation  of  their  belongings,  which 
is  threatened  by  the  socialistic  legislation  the  fu- 
ture promises,  if  signs  and  omens  are  to  be  read 
aright.  The  form  their  revolt  takes  would  con- 
stitute a  unique  page  in  history.  But  to  do  jus- 
tice to  the  pioneers  of  modern  municipalism,  they 
started  on  their  voyage  of  expropriation  with  no 

105 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

deliberate  design  of  doing  harm  to  other  people 's 
interests.  They  were  merely  obsessed  by  the  be- 
lief that  municipalities  had  a  divine  ordinance  to 
perform  certain  things  at  which  they  had  never 
tried  their  hands  hitherto.  They  were  overcome 
by  a  spirit  of  self-assertiveness ;  their  self -devel- 
opment created  a  form  of  public  egotism,  as  it 
were,  which  unremittingly  exhibited,  duly  clashed 
with  the  activities  of  private  corporations  ener- 
getically engaged  in  the  very  objects  the  munici- 
pality desired  to  monopolize.  Their  intentions, 
it  is  true,  were  well  meant.  But  they  blundered 
sadly  in  failing  to  see  the  outcome  of  their  new 
policy.  When  some  years  ago.  Sir  Albert  Rollit, 
the  president  of  the  Municipal  Corporations  Asso- 
ciation, declared  that  municipalities  disclaimed 
any  intention  to  trespass  on  the  legitimate  prov- 
ince of  the  private  trader,  he  spoke  too  late.  This 
mischief  had  already  been  done.  The  ownership 
policy,  once  started  upon,  as  I  have  already  shown, 
awoke  the  socialistic  party  into  feverish  activity, 
for  they  discovered  that  here,  at  last,  was  a  vulner- 
able part  of  the  armor  of  society  which  they  could 
pierce  with  success.  It  drew  in  their  mesh  the  le- 
gitimate workingman  with  his  trades-unions,  and 
all  the  incapables  of  his  class,  added  to  the  sub- 
merged tenth  beneath  it.  By  the  accession  of  such 
voting  strength— obtained  by  methods  which   T 

106 


A  POWER  TO  BE  RECKONED  WITH 

shall  presently  describe  in  more  detail— the  tax- 
payer, on  whom  the  whole  burden  falls,  has  been 
numerically  outclassed,  even  if  he  voted  to  his 
full  complement ;  and  that,  overwhelmed  as  he  is  by 
the  legions  of  non-taxpaying  voters  ranged  against 
him,  he  does  not  too  often  trouble  to  do.  There 
are*  many  examples  in  British  industrial  cities  of 
one  class  (the  masters)  providing  the  money 
whilst  another  class  (the  men)  elect  how  it  shall 
be  spent.  It  explains  the  ''popularity"  of  Mu- 
nicipal Trading  in  Great  Britain.  The  class  that 
supports  it  is  not  the  class  that  pays.  It  is  a 
popularity  which  wirepullers  can  very  easily  cre- 
ate. He  that  pays  the  piper  does  not  call  the 
tune.  To  the  poorer  population  of  any  town  ex- 
empt from  direct  taxation,  the  spectacle  of  an  os- 
tentatious street  railway  system,  with  the  munici- 
pality's title  emblazoned  on  the  cars,  or  an  ornate 
electricity  works  which  supplies  power  only  to  a 
section  of  the  community,  whilst  all  the  taxpayers 
contribute  to  its  upkeep,  whether  electricity  is 
used  by  them  or  not,  conveys  a  sense  of  personal 
ownership  (to  which  they  have  contributed  noth- 
ing)—a  pleasurable  feeling  that  it  is  ''ours,"  and 
that  they  live  in  a  go-ahead  town.  The  impres- 
sion so  created,  added  to  the  fact  that  popular 
judgments  are  largely  guided  by  official  utter- 
ances, is  a  potent  influence  in  securing  their  votes 

107 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

at  election  time,  apart  from  the  anxious  canvass- 
ing of  the  trading  party. 

The  winning  over  of  the  less  responsible  of  the 
population  to  an  approval  of  the  ownership  prin- 
ciple by  according  them  the  enjoyment  of  all  man- 
ner of  privileges,  results  in  an  over-municipalized 
city,  in  which  the  taxpayer,  as  individual  or 
trader,  does  not  figure,  and  the  working-class  voter 
only  counts.  Glasgow  is  a  typical  instance. 
There  ''a  citizen  may  live  in  a  municipal  house. 
He  may  walk  along  the  municipal  street,  or  ride 
on  the  municipal  tram-car,  and  watch  the  munici- 
pal dust-cart  collecting  the  refuse  which  is  to  be 
used  to  fertilize  the  municipal  farm.  Then  he 
may  turn  into  the  municipal  market,  buy  a  steak 
from  an  animal  killed  in  the  municipal  slaughter- 
house, and  cook  it  by  the  municipal  gas  on  the  mu- 
nicipal gas-stove.  For  his  recreation  he  can 
choose  amongst  municipal  libraries,  municipal  art 
galleries  and  municipal  music  in  the  municipal 
parks.  Should  he  fall  ill,  he  can  ring  up  his  doc- 
tor through  the  municipal  telephone,  or  he  may 
be  taken  to  the  municipal  hospital  on  the  munici- 
pal ambulance  by  a  municipal  policeman.  Should 
he  be  so  unfortunate  as  to  get  on  fire,  he  will  be 
put  out  by  a  municipal'  fireman,  using  municipal 
water;  after  which  he  will,  perhaps,  forego  the 
enjoyment'of  a  municipal  bath,  though  he  may  find 

108 


A  POWEE  TO  BE  BECKONED  WITH 

it  necessary  to  get  a  new  suit  in  the  municipal  old- 
clothes  market."* 

The  government  of  any  city,  conducted  on  these 
lines,  brings  us  back  to  a  consideration  of  the 
hangers-on,  the  employes,  the  satellites,  and  the 
pickers-up  of  crumbs  and  unconsidered  trifles  who 
cluster  round  a  local  authority  which  seeks  to  be 
a  universal  provider.  Of  such-like,  the  employe 
is  the  most  important,  because  his  numbers  and 
voting  power  are  growing,  and  his  collective 
strength  may  one  day  develop  him  to  a  Franken- 
stein so  huge  that  his  creators  will  be  unable  to 
hold  him  in  restraint.  Even  now  municipal  can- 
didates nervously  acknowledge  his  voting 
strength,  and  kowtow  to  him.  The  manifest  social 
danger  of  giving  such  power  to  a  class  of  men  who 
are  necessarily  of  an  inferior  caliber  in  mind  and 
character  (since  they  are  the  product  of  an  infer- 
ior environment)  means,— if  it  comes  to  no  worse 
—that  in  the  course  of  time  municipal  employes 
will  rule  the  local  Council,  not  the  Council  the 
employes.  They  will  choose  their  masters,  who 
will  be  at  their  dictation.  Notable  supporters  of 
Municipal  Trading  are  so  alive  to  this  danger 
that  they  strongly  advocate  the  disfranchisement 
of  every  man  dependent  for  livelihood  on  his  em- 
ployment by  a  municipality.    The  present  com- 

*R.  E.  C.  Long,  "Fortnightly  Beview,"  January,  1903. 
109 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

plexion  of  the  British  Parliament,  however,  does 
not  hold  out  any  prospect  that  this  is  likely  to  oc- 
cur. Municipal  employes,  like  their  masters,  are 
aware  of  their  power.  They  have  an  organiza- 
tion numbering  2,000,000.  A  little  while  back, 
Mr.  Keir  Hardie,  leader  of  the  Independent  Labor 
Party  (a  portion  of  whose  program,  by  the  way, 
is  to  give  municipalities  power  to  sell  coal,  bread, 
milk,  and  dairy  and  farm  products),  discovered 
this  fact,  and  regarded  the  dimensions  the  organ- 
ization had  reached  as  ''very  interesting,"  es- 
pecially as  they  represented  14  per  cent,  of  the 
total  wage  earners  in  Great  Britain,  who  now 
number  14,000,000.  This  leader  of  labor  congratu- 
lated them  on  the  fact  that  in  1903,  when  there 
was  a  reduction  of  wages  all  round,  the  wages  of 
municipal  employes  alone  had  increased— it 
might  be  said,  had  even  doubled.  Public  men 
(Lord  Avebury  among  them)  are  constantly  draw- 
ing attention  to  the  enormous  influence  which  mu- 
nicipal employes  can  and  do  exert  at  local  elec- 
tions for  purely  personal  objects.  As  a  matter 
of  fact,  the  Municipal  Employes  Association 
offers,  as  an  inducement  to  municipal  servants  to 
join  it,  the  wonderful  influence  at  municipal 
elections  which  they  would  be  able  to  exercise. 
And,  indeed,  local  authorities,  in  their  anxiety  to 
purchase  their  loyalty,  dangled  cherries  in  plenty 

110 


A  POWER  TO  BE  RECKONED  WITH 

for  them  to  bite  at.  ' '  Every  committee  proposal 
put  forward  by  the  governing  body  offers  a  temp- 
tation to  the  workpeople  to  grasp  at  a  momentary 
advantage,  and  let  the  future  take  care  of  itself. 
In  this  manner  it  substitutes  individual  for  cor- 
porate welfare  as  the  motive  of  the  working-class 
voter,  and  so  the  patriotic  ideal  is  overmastered 
by  self-interest,  and  the  democratic  judgment  is 
poisoned.  In  his  civic  capacity  our  Constitution 
expects  a  voter  to  be  altruistic;  communism 
tempt's  him  to  be  egoistic."^ 

The  creation  of  such  a  privileged  class  of  em- 
ployes in  the  United  States  would  undoubtedly 
constitute  a  similar  menace  to  the  public  weal. 
Reflect  for  a  moment  what  an  organization  like 
Tammany  would  become  if,  to  its  present  force 
of  officials,  an  army  of  industrial  employes  should 
be  added.  In  Great  Britain  their  power  is  partic- 
ularly felt  because  of  the  small  percentage  of  the 
other  electors  who  go  to  the  poll  at  municipal  elec- 
tions. The  percentage  is  well  under  50  per  cent., 
and  is  rarely  above.  The  London  County  Coun- 
cil rejoices  in  35,000  employes,  and  for  the  whole 
London  area,  there  are  60,000  men  in  the  munici- 
pal service— a  large  proportion  of  whom  occupy 
municipal  dwellings.  The  electorate  in  London  for 
municipal  purposes  in  1905  numbered  742,000.  As 

^  Dixon  H.  Davies. 

Ill 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

no  more  than  half,  generally  less,  exercise  their 
vote,  say  371,000,  the  60,000  votes  of  the  municipal 
employes  represent  nearly  17  per  cent,  of  votes 
recorded.  For,  whoever  abstains  from  voting, 
it  is  not  the  municipal  employe.  If,  however,  he 
should  lack  t^rdor  in  recording  his  vote,  then  he 
is  assiduously  whipped  up  by  anxious  candidates 
and  their  aldermanic  supporters.  At  a  Birming- 
ham municipal  election  not  so  long  ago,  this  was 
done  so  shamelessly  that  even  the  London  ' '  Daily 
News,"  a  leading  organ  of  municipalization,  was 
moved  to  protest.  ''Even  the  City  Council,"  it 
remarked,  "were  not  immaculate  in  their  prac- 
tices. It  was  not  dignified  to  see  leading  munici- 
pal officials  marshaling  bands  of  corporation  work- 
men into  the  polling  area  and  explicitly  instruct- 
ing them  to  vote  for  the  bill. ' '  (The  occasion  was 
a  referendum  to  the  citizens  as  to  whether  the  mu- 
nicipality should  take  over  the  street  railways). 
But  as  a  rule  municipal  employes  need  little  egg- 
ing on,  organized  as  they  are,  and  thoroughly  im- 
bued with  the  importance  (to  them)  of  perpetuat- 
ing and  developing  the  ownership  idea  to  the 
length  of  its  tether.  The  "Times,"  in  its  re- 
peated warnings,  thus  sums  up  this  phase  of  the 
tendency:  "In  every  municipality  there  will  be  a 
large  body  of  voters  and  ratepayers  whose  inter- 
est  it   will   be  to    encourage   and   promote   ex- 

112 


A  POWEE  TO  BE  RECKONED  WITH 

penditure;  who  will  be  certain  to  unite,  and  will 
be  able  when  united,  to  carry  their  points.  When 
once  a  municipality  has  set  up  an  establishment 
for  carrying  on  any  industry  it  will  be  no  use 
trying  to  undo  the  mistake,  if  such  it  prove  to  be. 
Municipal  hands  cannot  be  turned  adrift.  Em- 
ployment must  be  found  for  them  at  the  expense 
of  the  ratepayers,  and  in  due  course  they  will  agi- 
tate for  pensions,  and,  in  the  end,  get  them.  It 
will  go  ill  at  the  next  election  with  anyone  who 
suggests  that  they  be  discharged  because  they  are 
useless,  or  that  expenses  should  be  cut  down." 

Before  dealing  with  this  question  of  pensions,  it 
must  not  be  forgotten  that  beyond  the  permanent 
employes  of  municipalities,  whose  positions  are 
their  safeguard  at  the  expense  of  the  taxpayers, 
is  a  large  straggling  class  of  loafers  and  ne  'er-do- 
wells,  with,  may  be,  a  sprinkling  of  genuine  un- 
employed men,  who  are  given  temporary  employ- 
ment by  local  bodies,  which  they  accept  on  a  prom- 
ise of  favors  to  come.  The  method  of  providing 
work  for  these  men  is  one  which,  whether  designed 
or  not,  undoubtedly  affects  the  working-class  vote 
in  favor  of  the  trading  policy.  It  is  a  form  of 
municipal  charity  known  as  '  *  relief  works, ' '  which 
are  not  undertaken  because  they  are  wanted,  but 
because  there  are  a  number  of  unemployed  want- 
ing work.  They  have  no  other  purpose,  and  their 
'  »  113 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

promotion  gives  a  wholly  artificial  complexion  to 
the  industrial  activities  of  a  district.  One  class 
is  living,  as  a  parasite,  upon  another,  which  pays 
for  work  that  may  be  likened  to  the  ploughing  of 
sands,  for  all  the  benefit  the  community  as  a  whole 
derives  from  it.  It  is  as  though  an  impecunious 
householder  were  forced  to  employ  a  man  to 
paint  a  house  which  did  not  require  painting,  him- 
self the  while  feeling  the  pinch  of  paying  for  work 
done  which  benefited  neither  him  nor  the  house, 
but  only  the  worker.  It  was  stated  in  the  House 
of  Commons  by  Mr.  Gerald  Balfour,^  when  the 
late  Unionist  Government  was  in  power,  that  for 
at  least  twenty  years  local  authorities  had  been 
giving  employment  relief  at  the  expense  of  the 
taxes.  I  will  quote  his  exact  words,  which  are  full 
of  meaning :  ' '  On  this  point  I  think  it  is  well  that 
we  should  rid  ourselves  of  all  illusions.  When  a 
local  authority  puts  in  hand  a  public  work  and  en- 
gages on  that  work  persons  who  are  avowedly  un- 
familiar with  it,  simply  because  they  are  unem- 
ployed, the  local  authority  is  undoubtedly  giving 
relief,  and  giving  it  at  the  expense  of  the  rates, 
to  the  extent  to  which  the  cost  of  the  labor  actually 
employed  exceeds  the  cost  at  which  the  labor 
would  have  been  provided  by  a  contractor.    If 

*" Debate    on    Unemployed    Workmen   Bill,"   "The    Timofl," 
Jtina  21,  1905. 

114 


A  POWER  TO  BE  RECKONED  WITH 

the  work  is  useless,  it  is  clear  that  the  entire  sum 
so  spent  by  the  local  authority  is  spent  in  relief. 
I  have  no  doubt  that  in  the  last  twenty  years  there 
has  been  a  considerable  expenditure  by  public 
authorities  on  works  of  useless  and  costly  charac- 
ter." According  to  a  return  presented  to  the 
House,  a  sum  of  something  over  $555,000  was 
spent  in  the  winter  of  1904  by  the  metropolitan 
authorities  on  works  undertaken  specially  for 
finding  work  for  unemployed  workmen.  A  fairly 
generous  estimate  may  be  made  if  the  value  of  the 
work  then  done,  circulated  in  wages  alone,  is  put 
at  a  little  over  $400,000.  From  a  return  made  by 
eighty-nine  of  the  largest  towns  in  the  United 
Kingdom,  in  January  of  1905,  in  seventy-four 
out  of  these  eighty-nine  places  the  local  authority 
gave  relief  employment,  and  the  men  employed 
at  that  time  or  another  in  the  provinces  numbered 
21,000.  In  London  during  the  same  month 
20,000  or  21,000  men  were  employed;  therefore, 
the  local  authorities  were  employing,  without  dis- 
franchisement, and  at  the  expense  of  the  rates, 
about  41,000  men.  As  to  the  cost  of  the  same 
work  in  the  provinces,  the  information  is  mea- 
ger ;  but  in  five  towns  alone,  Manchester,  Salford, 
Leeds,  Bradford  and  Sheffield,  about  $180,000  was 
spent  on  employment  of  this  kind  during  the  win- 
ter named. 

116 


THE  DANGEKS  OF  MUNICIPAL  OWNERSHIP 

The  question  arises,  to  what  extent  masses  of 
the  unemployed  may  feed  on  the  taxes  by  being 
given  work  which  is  unremunerative,  and  has  no 
other  object?  Sentiment  may  answer  that  it  is  hu- 
manitarian, and  so  it  would  be  if  the  means 
adopted  did  not  empty  one  man's  pocket  to  fill 
another's.  The  people  so  helped  do  not  pay 
taxes.  In  London,  out  of  703,000  rate  assessments 
levied  in  1901,  no  fewef  than  309,500  were  in  re- 
spect of  houses  and  tenements  the  rates  of  which 
are  paid  by  the  house-owners,  and  not  by  the  ten- 
ants, and  it  is  among  this  class  that  the  people 
who  are  given  this  sort  of  employment  are  to  be 
found. 

The  more  far-seeing  and  steady  of  this  unskilled 
and  vagrant  class  hold  on  to  municipalities  as 
drowning  men  clutch  at  straws,  in  the  hope  of 
permanent  employment,  and  that  obtained,  they 
help  to  swell  the  dimensions  of  the  already  vast 
army  of  the  laboring  class  who  by  their  vote  al- 
ready threaten  to  dictate  to  local  authorities  what 
policy  they  shall  pursue.  They  have  old  age  in 
front  of  them,  and  once  safely  berthed  in  the  mu- 
nicipal port,  will  see  to  it  that  they  are  not  then 
turned  adrift. 

Here  arises  another  aspect  of  the  general  ques- 
tion of  municipal  employes,  indicated  in  the  quo- 
tation made  from  "The  Times."  which  involves 

116 


A  POWER  TO  BE  RECKONED  WITH 

the  piling-up  of  additional  obligations  on  future 
generations.  Gradually,  but  certainly,  other 
classes  of  workpeople  and  their  superintendents 
are,  like  them,  qualifying  for  pensions  or  super- 
annuations—school teachers,  policemen,  poor-law 
officers,  gasworkers,  tramway  men,  and  so  forth. 
For  example,  the  pension  list  of  the  London 
County  Council  for  1906-7  is  estimated  at 
$320,475,  as  against  $133,845  in  1899-90.  I  am 
assured  that  no  sufficient  provision  is  being  made 
to  provide  the  capitalized  value  of  these  accruing 
pensions,  and  that  some  day  English  ratepayers 
will  wake  up  and  find  obligations  representing 
twenty-five,  perhaps  fifty  millions  sterling,  for 
services  which  were  given  to  a  previous  genera- 
tion. These  pensions  are  growing  by  leaps  and 
bounds  in  Australia.  Obviously,  the  continued 
growth  of  municipal  employes  increases  this 
danger.  In  Australia,  constitutional  government 
has  been  paralyzed,  and  a  Trades  Hall  Party  has 
become  all-powerful  without  responsibility.  In- 
crease of  wages  and  lessened  hours  of  work  have 
resulted  in  individual  stagnation.  The  abuse  of 
the  early  closing  acts,  it  is  said,  is  also  responsible 
for  a  large  amount  of  distress  among  the  small 
shop-keeping  class.  Every  reduction  in  the  hours 
of  employment  has  been  accompanied  by  an  in- 
crease in  the  rates  of  wages,  which  is  handed  on 

117 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

to  the  customer  in  the  shape  of  increased  prices 
and  charges. 

The  end  in  Australia,  or  in  England,  if  Muni- 
cipal Trading  continues  unchecked,  will  be  pre- 
cisely the  same  as  the  end  of  Count  Witte's  policy 
in  Eussia— the  demoralization  and  impoverish- 
ment of  the  people.  The  fact  that  the  mechanism 
is  worked  differently  does  not  alter  the  results. 
Count  Witte,  when  Russia's  finance  minister, 
set  in  to  train  a  vast  bureaucratic  system,  which 
is  only  a  somewhat  magnified  edition  of  that  of 
the  British  municipalist  and  the  Australian  labor 
leader.  They  are  all  working  tooth  and  nail  for 
the  same  end,  namely,  the  establishment  of  a  vast 
fabric  of  State  Ownership  and  State  patronage 
for  the  benefit  of  those  who  hold  the  power,  and 
whatever  agency  controls  these  industries,  whether 
State  or  municipal,  whether  the  strings  are 
pulled  by  a  "silent  gentleman  in  a  frock  coat"  in 
St.  Petersburg,  or  by  a  committee  of  municipal 
socialists  in  the  Spring  Gardens,  London,  or  by 
labor  officials  in  Trades  Hall,  Melbourne,  makes 
no  difference.    The  results  are  the  same. 


118 


CHAPTEE  Vn 

THE  PEESONNEL  OP  BEITISH  LOCAL  AUTHORITIES 

Unwillingness  of  efficient  business  men  to  take  part  in  public  af- 
fairs .  .  .  Dependence  on  paid  officials  .  .  .  Members  of  Coun- 
cils always  changing  through  periodical  elections  .  .  .  Personal 
ability  of  councilors  no  guarantee  of  their  fitness  to  conduct 
trading  .  .  .  Extension  of  functions  lowering  the  standard  of 
Municipal  Councils  .  .  .  The  town  clerk  and  his  colleagues  the 
real  administrators  .  .  .  Types  of  Municipal  officials  .  .  .  Per- 
manence of  directing  control  of  companies  .  .  .  No  sole  depend- 
ence on  paid  subordinates  .  .  .  Business  qualifications  of  Muni- 
cipal candidates  not  an  issue  at  elections  .  .  .  Their  political 
views  the  only  criterion  .  .  .  Election  of  men  of  inferior  busi- 
ness caliber  cause  of  bad  management  .  .  .  Their  social  status 
.  .  .  Their  exploits  in  Battersea  •  .  .  Tongue-tied  firms  doing 
business  with  municipalities  .  .  .  The  Association  of  Municipal 
corporations  .  .  .  The  British  alderman  ,  .  .  Municipal  domina- 
tion in  the  House  of  Commons  .  .  .  Coercing  of  members  to 
support  Municipal  and  oppose  private  schemes. 

HAVING  dealt  with  the  municipal  servant, 
the  municipal  masters— councilors  and  of- 
ficials—call for  similar  attention.  Judged  alone 
by  their  fitness  to  undertake  Municipal  Trading, 
irrespective  of  their  qualifications  as  councilors 
and  officials,  we  do  not  find  their  activities  prove 
that  the  better  the  men  the  better  the  work,  be- 
cause, while  the  best  class  of  business  men  are 
willing  to  give  a  reasonable  amount  of  time  to 
public  matters,  it  is  impossible  to  secure  the  same 

119 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

class  of  men  to  study  and  conduct  intricate  busi- 
ness, which  must  of  necessity  then  fall  into  the 
hands  of  paid  officials.  The  organization  of  a 
city  council  or  the  committee  of  a  city  council 
does  not  lend  itself  to  effective  management  of 
commercial  undertakings.  Their  duties  are  too 
diverse  for  them  to  control  large  businesses  ef- 
ficiently, and,  on  the  other  hand,  the  personal  re- 
sponsibility is  too  vague  to  bring  home  to  them 
the  results  of  financial  mistakes.  The  question 
has  been  asked— who  would  purchase  shares  in  a 
company  the  board  of  which  was  to  be  elected  by 
its  own  employes'?  An  increasing  number  of 
professional  and  business  men  feel  they  cannot 
give  the  time  necessary  to  master  the  infinite  de- 
tails of  large  commercial  undertakings,  with  the 
result  that  these  grave  responsibilities  are  rele- 
gated to  men  encouraged  to  enter  local  politics 
for  very  different  purposes.  The  fact  that  there 
is  at  present  a  measurable  degree  of  integrity 
and  ability  in  the  management  of  municipal  af- 
fairs does  not  mean  that  it  will  always  remain 
so.  There  was  a  time  when  English  cities  were 
as  corruptly  managed  as  some  American  cities 
have  been  in  more  recent  years,  and  constant  vigi- 
lance in  such  matters  is  as  important  on  one  side 
of  the  Atlantic  as  on  the  other.  It  is  impossible 
to  view  with  complacency  a  system  of  local  ad- 

120 


THE  PERSONNEL  OF  BBITISH  LOCAL  AUTHORITIES 

ministration  which  confides  the  control  not  merely 
of  proper  municipal  work,  but,  to  a  large  extent, 
of  local  industrial  enterprise,  to  the  hands  of  a 
bureaucracy.  Here  we  have  the  baneful  example 
of  Russia  being  followed  with  fidelity.  Of  course 
such  a  shifting  of  the  real  work  from  the  shoulders 
of  councilors  to  those  of  paid  officials  is  not  to 
be  wondered  at  if  regard  be  had  to  the  average 
personnel  of  the  members  of  municipal  councils 
and  to  the  short  tenure  for  which  they  are  elected. 
The  composition  of  a  municipal  council  is  always 
in  a  state  of  flux ;  it  is  a  shifting  quantity,  whilst 
the  staff  of  permanent  officials  remains  constant. 
It  would  be  unjust  to  question  the  personal  abili- 
ties of  many  members  of  municipal  bodies,  but 
that  admitted,  it  does  not  follow  that  they  are 
able  to  conduct  successfully  outside  undertakings. 
Many  have  realized  this,  and  decline  to  accept 
places  on  the  boards.  As  a  result,  frequent 
changes  take  place,  which  is  very  bad  for  indus- 
trial undertakings,  because  it  constantly  puts  men 
without  experience  of  the  particular  industry  in 
charge  of  the  work.  For  example,  the  London 
County  Council  has  been  in  existence  only  seven- 
teen years,  but  so  overwhelming  is  the  work 
that  I  understand  only  about  ten  now  remain 
out  of  137  original  members.  This  undoubtedly 
accounts  for  such   stupendous  mistakes   in  esti- 

121 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIF 

mating  the  cost  of  electrical  undertakings,  in 
which  the  actual  cost  has  exceeded  by  three-fold 
the  original  estimates  given  the  board  by  the 
committee;  and  for  the  foolish  and  unnecessary 
losses  in  the  experiment  of  Thames  steamboats. 
That  the  extension  of  functions  will  end  in  lower- 
ing the  standard  of  local  legislators  is  not  only 
my  opinion,  but  the  opinion  of  many  disinterested 
and  thoughtful  Englishmen.  It  has  been  said 
with  truth  that  the  real  rulers  of  the  British  Em- 
pire are  the  permanent  government  officials  at 
Whitehall,  not  the  particular  political  party 
which,  for  the  time  being,  has  gained  popular 
support.  With  equal  force  it  may  be  said  that  the 
real  local  administrators  in  Great  Britain  are 
often  the  town  clerk  and  his  colleagues,  who  sway 
their  councils  with  the  success  which  superior 
experience  commands.  For  this,  judged  from  the 
point  of  view  of  their  own  self-interests,  they  can- 
not be  blamed.  Far  from  a  local  body  ''instruct- 
ing" their  town  clerk  to  take  this,  that,  or  the 
other  action,  it  is  as  often  the  case  that  the  ''in- 
struction" is  a  cut  and  dried  matter  which  the 
town  clerk  has  previously  settled  upon,  and  for 
the  carrying  out  of  which  he  formally  obtains  the 
endorsement  of  his  council.  Often  they  brush 
aside  this  fiction  of  "instructing"  their  officials, 
and  boldly  state  that  they  are  "acting  upon"  the 

122 


THE  PERSONNEL  OF  BRITISH  LOCAL  AUTHORITIES 

'* advice"  of  their  town  clerk,  or  engineer,  or  other 
expert.  To  a  municipal  council,  or  the  usual  com- 
mittees into  which  it  is  divided,  and  to  whom  is 
delegated  the  conduct  of  different  departments  of 
municipal  work,  the  paid  officials  often  are  guides, 
councilors  and  friends.  Of  course,  municipal  of- 
ficers are  not  all  alike.  Some  have  even  been  de- 
scribed as  a  compound  of  vanity,  ignorance  and 
servility,  too  tame  to  be  anything  like  so  bold  as 
to  swing  their  council  to  their  way  of  thinking. 
Officials  of  this  type  generally  go  through  life 
consumed  with  the  fear  of  an  arrogant  amateur 
committee— a  committee  composed  of  various 
cliques  of  tradesmen  and  labor  men,  who  fight 
furiously  for  any  credit  that  may  be  going,  but 
try  to  shift  the  blame  on  the  official.  As  the  con- 
stitution of  these  committees  is  always  subject 
to  change  after  the  frequent  municipal  elections, 
the  official  must  always  struggle  to  keep  in  the 
good  graces  of  all  parties,  so  that  he  has  to  be  a 
Barnum  freak  of  the  '' boneless  wonder"  type,  or 
else  he  loses  his  employment.  There  is  un- 
doubtedly a  leaven  of  men  of  character  among 
them,  who  are  like  faithful  dogs  leading  their 
blind  masters— instructors  and  shepherds  of  ig- 
noramuses. But  conceive  of  the  directorate  of 
a  trading  company  absolutely  depending  for  the 
success  of  its  operations  upon  paid  subordinates, 

123 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

who  act  on  *  *  directions ' '  they  themselves  have  in- 
spired, and  generally  rule  the  roost. 

Municipal  councilors,  as  shown,  cannot  help 
themselves  in  this  reliance  on  officials,  on  ac- 
count of  the  instability  of  their  position,  apart 
from  their  ignorance.  In  periodically  running 
the  risk  of  losing  their  seat,  they  are  unable 
to  establish  a  permanent  solidarity  of  policy  with 
one  another.  Members  of  a  private  firm,  on  the 
other  hand,  enjoy  a  lifelong  association.  In  the 
case  of  a  company,  a  change  of  directorate  does 
not  interfere  with  its  cohesion  or  policy.  If  the 
personnel  of  a  firm  were  changed  as  often  as  is 
that  of  a  municipal  body,  no  business  could  be 
conducted  successfully.  Moreover,  men  serving 
for  a  period  on  municipal  councils  are  not  elected 
directly  as  members  of  a  body  established  for 
trading  purposes.  That  question  does  not  come 
before  the  local  electors  as  a  separate  and  dis- 
tinct issue.  Candidates  are  elected  by  reason  of 
their  views  on  any  question,  local  or  imperial. 
Not  much  is  heard  at  elections  of  the  injustice  of 
municipalities  encroaching  on  the  rights  of  indi- 
viduals by  competing  with  them  as  traders,  with 
the  public  purse  as  their  capital.  One  influence 
only,  in  the  majority  of  cases,  sends  municipal 
candidates  to  the  top  of  the  poll,  and  that  is, 
their  political  views.    They  get  through  primarily 

124 


THE  PERSONNEL  OP  BRITISH  LOCAL  AUTHORITIES 

as  politicians,  not  as  business  men.  In  fact,  as  I 
have  already  stated,  men  who  are  accustomed  to 
deal  with  large  affairs,  and  who  understand  the 
complexities  of  great  financial  arrangements,  are 
not  to  be  found  to  any  extent  on  the  councils  of 
municipalities.  They  are,  for  the  most  part,  en- 
gaged in  undertakings  similar  to  those  carried 
on  by  municipalities,  and  cannot  be  expected  to 
spend  their  time  in  competing  with  themselves. 
The  services  of  these  men,  which  would  prove  so 
valuable  in  the  important  legitimate  duties  of  lo- 
cal government,  are,  therefore,  lost  to  the  coun- 
try. The  places  which  such  men  fill  are  taken  by 
others,  who  are  quite  unfitted  to  control  the  large 
interests  intrusted  to  their  care.  The  inevitable 
consequences  follow.  Expenditure  is  incurred, 
partly  extravagant  and  unnecessary,  because  lo- 
cal authorities  are  frequently  bad  managers,  even 
where  they  are  not  corrupt.  They  spend  money 
on  what  is  not  really  wanted,  and  more  than  they 
ought  on  what  happens  to  be  necessary.  Heavy 
liabilities  are  incurred,  and  they  burden  the  fu- 
ture lightheartedly.  ''Expenditure,"  as  Sir 
Robert  Giffen  has  well  said,  **is  pleasant  to 
those  who  have  a  little  brief  authority,  and 
the  increase,  of  the  number  of  local  authorities 
increases  the  rnunber  of  those  who  enjoy  that 
pleasure." 

125 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

Here  it  will  not  be  amiss  to  glance  at  the  social 
status  of  members  of  local  bodies  in  England,  in 
whom  are  vested  powers  to  spend  large  sums  of 
public  money  to  an  extent  which,  measured  to 
their  own  personal  means,  are  as  a  mountain  is 
to  a  molehill.  A  few  years  ago  a  list  was  drawn 
up  giving  the  occupations  of  the  members  of  the 
Poplar  Board  of  Guardians,  and  ''The  Times,"  in 
the  exhaustive  inquiry  into  Municipal  Ownership 
in  England,  which  it  made  in  1902,  and  to  which 
I  have  had  frequent  occasion  to  refer,  analyzed 
this  list.  As  conditions  are  much  the  same  to- 
day, it  will  be  instructive  to  show  to  what  type  of 
men  belongs  a  board  which  annually  spends  over 
$1,000,000  of  the  public  funds.  One  was  a  cooper 
rated  on  a  rental  of  $55  a  year ;  another,  a  jobbing 
builder,  on  $75;  a  third,  a  polisher,  on  $80;  a 
fourth,  a  gas  stoker,  on  $50 ;  a  fifth,  an  undertaker, 
on  $120 ;  and  a  sixth,  a  gas  man  rated  on  a  rental 
of  $75  a  year.  Then  there  was  a  greengrocer,  a 
confectioner,  a  baker,  a  fireman,  a  caretaker,  a 
couple  of  publicans,  and  so  forth,  who  were  taxed 
on  an  assessment  somewhat  higher  than  those 
named;  but  in  no  case  did  a  single  member  pay 
any  taxes  at  all.  They  lived,  in  fact,  in  small 
houses,  the  taxes  of  which  were  paid,  by  the  land- 
lord, so  that  here  we  have  a  body  of  men  disburs- 
ing large  sums  of  public  money,  to  which  they 

126 


THE  PERSONNEL  OF  BRITISH  LOCAL  AUTHORITIES 

have  directly  not  contributed  a  cent.  Another 
instance  of  a  district  similarly  governed  is  the 
London  borough  of  Battersea,  fittingly  described 
by  the  ''London  Standard"  as  '*a  cradle  of  ad- 
vanced thought  and  a  hot-bed  of  revolutionary 
doctrinaires. ' '  Its  local  council,  largely  composed 
of  workingmen,  some  of  them  even  general  labor- 
ers, is  possessed  of  the  idea  that  public  money 
may  be  promiscuously  spent  for  the  benefit  of 
all  comers.  This  takes  the  form  of  building  by 
direct  labor,  instead  of  employing  private  firms, 
luxurious  recreation  rooms  and  museums,  pub- 
lic libraries,  gymnasiums  and  workmen's  dwell- 
ings, several  of  which  institutions  are  wholly  un- 
necessary, as  the  district  is  already  provided  with 
them.  These  enterprises,  however,  are  merely  en- 
tered upon  to  provide  work  for  the  army  of  local 
workmen  which  constitutes  the  voting  strength  of 
the  socialistic  Council.  The  Council,  naturally, 
being  of  the  same  class  as  their  constituents, 
yield  to  the  temptation  to  do  their  fellows  a  good 
turn,  without  troubling  themselves  about  consid- 
erations of  public  policy.  Added  to  these  super- 
erogatory acts,  the  Council  has  built  baths  at  an 
estimated  outlay  of  $194,000  and  an  actual  cost  of 
$280,000,  the  loss  on  working  which  last  year  was 
over  $55,000.  These  ventures  spring  from  the 
municipal  "works  department,"  an  establishment 

127 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

formed  for  the  direct  employment  of  labor  by  the 
municipality— a  type  of  enterprise  which  usually 
spells  expensiveness,  often  inefficiency,  and  occa- 
sionally scandals.  The  result  is  that  every  form 
of  municipal  enterprise  which  its  Council  has 
tried  has  ended  in  a  dead  loss,  and,  in  many  cases, 
in  injury  to  Battersea  traders. 

Not  so  much  exception,  however,  would  be  taken 
to  the  inferior  caliber  of  average  British  coun- 
cilors if  their  attitude  to  private  traders,  whose 
chief  customers  are  public  bodies,  were  above  re- 
proach. Unfortunately,  that  cannot  be  said  of 
them.  There  are  now  enough  engineers  and 
business  men  employed  in  municipal  under- 
takings to  form  an  imposing  industrial  reg- 
iment, and  as  many  of  them  are  engaged 
in  work  which  gives  them  special  opportunities 
for  observing  and  criticizing  the  operation  of 
Municipal  Trading,  their  impartial  opinion  as  to 
the  general  expediency  of  public  ownership  should 
be  very  valuable.  But  there  is  an  obligation 
of  silence  imposed  upon  them  which  makes  it 
most  imprudent  for  any  director  or  official  of 
contracting  and  manufacturing  companies,  inti- 
mately or  remotely  concerned  with  local  govern- 
ment affairs,  to  breathe  a  syllable  of  disapproval 
of  the  most  glaring  instances  of  municipal  mud- 
dling, even  when  they  injuriously  affect  the  inter- 

128 


THE  PERSONNEL  OF  BRITISH  LOCAL  AUTHORITIES 

est  of  his  own  business.  The  Association  of  Mu- 
nicipal Corporations  is  so  powerful,  its  tentacles 
so  far-reaching,  and  the  self-defensive  instincts 
of  the  aldermen  and  councilors  so  sensitive,  that 
any  manufacturer  or  contractor  who  dared  to 
question  their  infallibility  and  speak  his  mind, 
however  apologetically,  as  to  the  evil  results  and 
tendencies  of  their  costly  experiments  in  social- 
ism, would  never  get  another  order  from  any  lo- 
cal authority  in  the  country,  and  would  be  actively 
interfered  with  in  his  relations  with  other  cus- 
tomers. If  any  official  of  such  a  company  re- 
leased his  self-restraint  and  expressed  his  genu- 
ine opinion  of  the  blundering  tyranny  of  the  sys- 
tem, he  would  have  to  be  thrown  overboard  by 
his  employer.  Consequently,  it  is  not  possible 
for  those  doing  business  with  municipalities  to 
come  out  in  the  open  and  frankly  state  their  ex- 
periences. Several  of  the  largest  electrical  man- 
ufacturing companies  have  reason  to  be  bitterly 
disappointed  with  the  results  of  their  enterprise, 
and  it  is  well  recognized  in  the  electrical  business 
that 'such  poor  results  are  simply  due  to  the  par- 
alyzing influence  of  municipal  monopolies.  The 
fact  that  most  municipalities  have  borrowed  all 
the  money  that  the  market  will  advance,  so  that 
they  have  no  funds  for  the  natural  extension  of 
their  electrical  supply  and  traction  undertakings, 
9  129 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

while  they  persistently  obstruct  any  attempt  on 
the  part  of  private  corporations  to  do  the  work 
that  they  are  themselves  neglecting,  obviously 
leaves  the  manufacturer  and  contractor  short  of 
what  should  be  his  normal  employment,  and  thins 
his  staff.  This  municipal  mongering  is  a  devital- 
izing element— a  disease  of  the  community,  in 
fact,  which  is  starving  industry  of  its  natural  sus- 
tenance, so  that  the  electrical  manufacturing  and 
numerous  allied  trades  are  in  a  state  of  chronic 
anaemia.  Only  those  concerns  that  fortunately 
secure  foreign  contracts  from  time  to  time  are 
able  to  m^ke  a  good  show  in  their  accounts. 

Viewed  from  New  York  or  Chicago,  the  Brit- 
ish alderman  may  look  like  a  combination  of  the 
noble  old  Roman  senator  and  an  immaculate  mod- 
ern trust  director.  He  seems  to  need  either  a 
pedestal  or  a  halo  to  do  his  portrait  justice.  But 
at  close  quarters  he  is  often  found,  as  may  be 
gathered  from  the  description  of  his  type,  to  be- 
long to  the  small  tradesman  class,  unless  he  is  a 
labor  member  of  Parliament.  The  tradesman 
goes  into  politics  primarily  to  advertise  his  store 
and  increase  his  importance  and  his  prosperity 
in  various  ways.  It  pays  him  to  be  a  member 
of  the  Council  of  his  municipality,  in  fact,  even 
if  he  conforms  to  the  ordinary  standard  of 
honesty.    As  for  the  labor  member,  he  is  more  or 

130 


THE  PERSONNEL  OF  BRITISH  LOCAL  AUTHORITIES 

less  a  professional  politician.  In  both  cases  po- 
litical influences  are  very  strong,  although,  as 
all  the  members  do  not  have  to  be  elected  at  the 
same  time,  but  in  triennial  sections,  there  are  not, 
as  a  rule,  violent  reactions.  The  pretense  of 
competency  and  efficiency  is  cleverly  kept  up,  and 
the  ordinary  taxpayer  only  knows  that  Munici- 
pal Trading  is  a  failure  by  the  increase  of  his 
rates,  which  has  directly  resulted  from  the  reck- 
less squandering  of  easily-borrowed  money  by 
people  who,  for  the  most  part,  have  never  been 
in  business  themselves  except  in  a  small  way. 
They  have  been  lifted  off  their  feet  by  the  rush 
of  loans  some  years  ago,  and  are  confirmed  public 
prodigals  beyond  redemption. 

But  neither  their  local  council  chamber,  their 
secret  cabals,  nor  the  particular  neighborhoods 
which  are  their  happy  hunting-grounds  for  sup- 
porters, suffice  for  the  arena  of  their  activities 
in  which  to  bring  about  the  socialistic  era  they  de- 
sire. Their  chief  battles  are  fought  and  won  in 
the  lobbies  and  committee-rooms  of  the  House  of 
Commons.  Mention  has  already  been  made  of 
the  Association  of  Municipal  Corporations,  the 
deus  ex  machina  by  which  members  of  Parliament 
are  cajoled  and  coerced  into  supporting  bills 
which  require  legislative  sanction  for  the  pur- 
pose of  spending  untold  sums  on  trading  schemes. 

131 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

This  powerful  body  spends  enormous  sums  in  op- 
posing the  projects  of  private  companies  requiring 
similar  sanction  on  the  ground  that  they  conflict 
with  the  extension  of  Municipal  Trading.  This 
means,  in  ejffect,  that  the  municipalities  are  con- 
tinually seeking  to  deprive  men  (and  their  own 
taxpayers  too)  of  the  opportunity  of  working  ac- 
cording to  their  own  choice  of  employment.  Lord 
Alverstone,  the  Lord  Chief  Justice  of  England, 
has  called  attention  to  the  great  influence  exer- 
cised in  Parliament  by  this  Association.  The 
tender  solicitude  with  which  it  watches  all  legis- 
lation affecting  Municipal  Trading,  and  the  skill 
with  which  it  can  concentrate  its  forces  at  short 
notice  in  aid  of  legislation  favoring  Municipal 
Trading,  and  to  defeat  obnoxious  measures,  gives 
some  idea  of  the  cohesive  power  of  self-interest— 
a  self-interest  which  is  dangerous  enough  when 
exerted  from  the  outside  in  large  combinations  of 
capital,  but  which  is  far  more  disastrous  to  sound 
government  when  exercised  from  within  by  a 
strongly-welded  organization  of  ambitious  offici- 
als determined  on  increasing  their  patronage  and 
extending  their  influence.  To  what  extent  the 
influence  of  this  organization  has  been  exerted 
to  retard  electrical  enterprise,  both  in  traction 
and  lighting  and  power  distribution,  it  is  impos- 
sible to  say,  but  there  is  a  general  belief,  founded 
upon  some  well-established  facts,  that  England 

132 


THE  PEESONNEL  OF  BEITISH  LOCAL  AUTHOEITIES 

would  have  made  much  more  headway  in  these  in- 
dustries had  it  not  been  for  the  deadening  influence 
of  organized  officialdom.  It  is  a  bureaucratic 
ring  so  strongly  organized  in  self-defense  that  it 
whips  the  member  for  a  Scotch  borough  to  vote 
against  an  electric  power  scheme  for  Ireland.  No 
private  scheme  which  touches,  even  remotely,  the 
objects  of  modern  municipalism,  is  permitted  to 
go  through  a  parliamentary  committee  without 
being  strenuously  opposed  clause  by  clause  by 
the  municipalities  en  masse,  represented  by  the 
attorneys  of  the  Municipal  Corporations  Associa- 
tion. 

Such  opposition  is  too  vindictive  to  have  as  its 
object  the  desire  to  perform  *  *  superior  public  ser- 
vice," or  to  relieve  the  taxes,  by  undertaking  to 
carry  out  themselves  what  private  enterprise  ia 
fully  qualified,  and  indeed  exists,  to  perform.  It 
is  not  difficult  to  cast  about  for  the  real  motive  for 
their  thwarting  of  private  enterprise  at  every 
turn.  However  harmless  were  the  beginnings  of 
Municipal  Trading,  it  has  now  developed  into  a 
thirst  for  power  for  power's  sake.  Municipali- 
ties want  to  be  paramount.  They  are  so  protected 
by  the  law  that  they  may  with  impunity  steal  a 
horse,  whilst  private  enterprise  cannot  look  over 
the  hedge.  Parliament  grandmothers  them  in 
such  a  way  that  the  merest  approach  of  private 
enterprise  on  the  preserves  of  any  one  munici- 

133 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

pality  not  only  sends  the  local  body  concerned 
scurrying  to  Westminster  to  beat  off  the  in- 
truder, but  with  it  all  the  other  authorities  from 
one  end  of  the  land  to  the  other  to  lend  support  to 
their  threatened  brother.  A  trivial  local  ques- 
tion as  to  whether  a  railway  company  shall  run 
motor  omnibuses  from  its  station  in  some  small 
town  is  therefore  opposed  by  all  the  local  authori- 
ties of  the  Kingdom  in  a  body.  The  railway  om- 
nibus may  take  a  few  passengers  from  the  mu- 
nicipal tramways,  and  that  must  not  be  suffered. 
Thus  the  schemes  promoted  by  private  enterprise 
for  providing  London  with  cheap  electric  power 
on  a  large  scale  have  not  only  had  to  face  the  op- 
position of  the  London  local  authorities,  but  of 
every  other  authority.  The  batteries  of  the  Mu- 
nicipal Corporations  Association  (with  which 
they  are  nearly  all  affiliated)  are  turned  on  most 
schemes  of  private  enterprise  put  before  Parlia- 
ment, and  it  is  small  wonder  that  the  latter  is  be- 
coming crippled  all  along  the  line. 

By  such  tactics  is  it  made  clear  that  the  in- 
herent weakness  of  modern  municipalization  lies 
in  its  utter  helplessness  to  face  private  enterprise 
in  the  open,  and  it  has  therefore  to  seek  the  shel- 
ter of  legalized  monopoly,  and  to  prop  itself  up 
by  compulsory  subsidies  wrung  from  the  tax- 
payers in  order  to  survive. 

134 


CHAPTEE  Vm 

THE  BURDEN   OF   OWNERSHIP  OBLIGATIONS 

Growth  of  British  local  debt  .  .  .  Comparison  with  that  of  United 
States,  and  proportion  sunk  in  reproductive  undertakings  in 
both  countries  .  .  ,  The  part  waterworks  have  in  each,  chiefly 
accounting  for  reproductive  debt  in  the  United  States  .  .  . 
Rate  of  expansion  of  debt  in  both  countries  .  .  .  Debts  of  lead- 
ing British  and  American  cities  compared  .  .  .  Report  of  Bir- 
mingham Chamber  of  Commerce  Committee  on  Imperial  and 
Local  Revenue  and  Expenditure  in  the  United  Kingdom  .  .  . 
The  disenfranchisement  of  limited  liability  companies  .  •  . 
Their  large  contributions  to  taxation  as  non-voters  contrasted 
with  comparatively  smaller  contributions  to  taxation  of  voters 
.  .  .  The  injustice  to  railway  companies  .  .  .  The  tax  burden 
on  struggling  shopkeepers  .  .  .  Protest  of  Birmingham  taxpay- 
ers .  .  .  Municipal  borrowing  powers  and  how  exceeded  in  pro- 
portion by  Ownership  pursuits  ...  A  French  economist's  view. 

WITH  such  advantages  in  their  favor,  let  us 
see  how  they  have  acquitted  themselves. 
Public  economy  has  been  defined  as  a  moral  prin- 
ciple ;  but  as  it  is  not  generally  practised  by  Brit- 
ish municipalities,  they  lay  themselves  open  to 
the  accusation  of  flagrantly  ignoring  one  of  the 
primary  laws  of  good  government.  Masses  of 
figures  which  illustrate  the  financial  dangers  of 
a  country  have  only  an  academic  significance  to 
its  inhabitants  until  they  begin  to  realize  that  each 
of  them  is  individually  involved  in  the  liabiUty 

135 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

created  by  reckless  State  or  municipal  adminis- 
tration. At  present  the  British  municipal  debt 
is  increasing  at  the  rate  of  $150,000,000  per  an- 
num, and  on  that  reckoning  it  is  highly  probable 
that  at  present  (1906)  it  has  reached  the  sum  of 
$2,640,000,000,  or  at  the  rate  of  over  $60  per  head 
of  the  population.  On  the  latest  published  ac- 
tual figures  (for  1903-4),  as  ascertained  from  the 
''Statistical  Abstract"  for  the  United  Kingdom 
for  1906,  the  British  local  debt  stood  at  £464,670,- 
440  ($2,323,352,200).  If  the  United  States  in- 
creases its  municipalized  industries  to  the  extent 
set  out  in  the  second  chapter,  it  will  have  a  munici- 
pal debt  exceeding  that  of  the  British  by  well  over 
$500,000,000.  In  1904  the  United  States  city 
debt  was  approximately  nearly  $800,000,000  be- 
low the  British  local  debt  of  1903-4.  The  actual 
indebtedness  of  United  States  cities  relating  to 
municipal  industries,  however,  bears  approxi- 
mately the  same  proportion  to  the  whole  sum  as 
the  amount  raised  for  the  same  purposes  by 
British  municipalities  bears  to  the  total  British 
debt,  e.g.: 

Proportion  stink  in 
Local  Debt  Reproductive  nnder- 

takinus  (1903-4) 

United  Kingdom  ....  $2,323,352,200  $1,075,502,270  ^ 
United  States 1,531,462,655  790,570,726 

*An  underestimate,  ascertained  as  follows:  England  and  Wales, 
$935,502,270;  Scotland  (same  year),  estimated  $140,000,000.  No 
figures  for  Ireland. 

136 


THE  BUEDEN  OF  OWNERSHIP  OBLIGATIONS 

But  if  the  respective  capital  of  the  municipal 
water  undertakings  of  both  countries,  about 
which  there  is  no  strong  contention,  be  deducted, 
at  once  is  seen  the  favorable  position  of  American 
municipalities  in  respect  of  its  ownership  schemes. 
The  following  figures  show  that  only  about  a  third 
of  the  British  reproductive  capital  is  represented 
by  municipal  waterworks,  whilst  well  over  two- 
thirds  of  the  American  productive  capital  is  thus 
accounted  for: 

United  Kingdom  United  States 

Capital    of    reproductive 

undertakings   $1,075,502,270      $790,570,726 

Less  waterworks 339,992,285        561,097,370 


$735,509,9851     $229,473,356 

By  thus  excluding  the  non-contentious  utility  of 
water,  the  American  municipal  reproductive  debt 
is  reduced  to  a  figure  more  than  a  third  below  the 
British  reproductive  debt  after  being  submitted 
to  the  same  process. 

It  will  be  well  to  glance  at  the  increase  of  the 
total  local  debt  of  both  countries  since  1880  (when 
each  was  practically  the  same),  to  show  the  head- 
long pace  at  which  it  has  advanced  in  the  United 
Kingdom  mainly  through  Municipal  Trading  spec- 
ulations, and  the  moderate  rate  of  expansion  in 
the  United  States  through  this  element  not  enter- 

*For  1900-1  (vide  "Municipal  Year  Book,"  1906). 

137 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

ing  to  anything  like  the  same  degree  into  local 
politics : 

United  Kingdom  United  States 

Local  debt  m  1880 $684,670,350      $684,348,840 

Local  debt  in  1890 993,356,560        724,263,060 

Here  it  will  be  seen  that  the  British  local  debt 
advanced  by  over  $300,000,000  in  the  decade  in- 
stanced, or  at  the  rate  of  $30,000,000  per  annum. 
The  American  local  debt,  on  the  other  hand,  only 
expanded  by  $40,000,000  in  the  same  period,  or 
at  only  $4,000,000  per  annum.  In  proportion  to 
the  population,  which  had  grown  twenty-five  per 
cent,  during  the  period,  this  small  increase  is 
really  a  decrease.  For  whilst  the  local  debt  per 
capita  in  1880  was  $56.62,  by  1890  it  had  been  re- 
duced to  $37.81  per  capita.  In  explanation  of 
this  decrease,  it  may  be  recalled  that  it  was  about 
this  time  that  American  cities  were  rescuing  them- 
selves from  the  burden  of  debt  they  were  loaded 
with  through  their  excessive  zeal  in  the  develop- 
ment of  their  districts,  to  which  I  alluded  in  the 
first  chapter.  To  continue,  confining  the  figures 
to  recent  years : 

United  Kingdom  1  United  States  2 

Local  debt  in  1902  ....  $2,037,269,675  $1,309,801,358 
Local  debt  in  1903  ....  2,189,411,175  1,425,841,585 
Local  debt  in  1904  ....  2,323,352,200    1,531,462,655 

1 ' '  British  Statistical  Abstract ' '  ( 1906) . 

*" United  States  Census  Bureau  Returns"   (Bulletins  20  and 
50). 

138 


THE  BUEDEN  OF  OWNERSHIP  OBLIGATIONS 

The  1902  figures,  compared  with  those  for  1890 
set  out  in  the  previous  table,  indicate  that  both 
the  British  and  the  American  local  debt  in  twelve 
years  had  more  than  doubled  in  the  one  case,  and 
nearly  doubled  in  the  other.  The  rate  of  expan- 
sion of  each  is  fairly  uniform.  Let  us  see  what 
part  reproductive  undertakings  had  in  the  in- 
creased indebtedness  of  the  years  1902-3-4  in 
both  countries,  applying  to  the  United  Kingdom 
the  official  figures  for  England  and  Wales,  and  es- 
timating the  reproductive  debt  of  Scotland  and 
Ireland  as  standing  at  $150,000,000  in  each  year, 
for  lack  of  exact  figures: 

United  Kingdom  United  States 

Reproductive  undertak- 
ings in  1902   $    948,806,390      $579,629,064 

Reproductive  undertak- 
ings in  1903   1,026,978,490        628,230,760 

Reproductive  undertak- 
ings in  1904  1,085,502,270        790,570,726 

If  these  figures  be  also  compared  with  the  total 
local  debt  shown  in  the  last  table,  it  will  be  seen 
that  in  both  cases  reproductive  works  account 
roughly  for  nearly  half  the  increment,  and  that 
the  ratio  of  their  increase  in  both  countries  is  ap- 
proximately the  same.  But  if  again  allowance 
be  taken  of  the  non-contentious  element  of  water, 
which  stands  out  as  the  chief  utility  in  municipal 

139 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

hands  in  the  United  States,  the  reproductive  debt 
figures  for  the  latter  country  admit  of  consider- 
able reduction.  Thus,  of  the  reproductive  debt 
in  the  United  States  in  1902  ($579,629,064),  no 
less  than  $376,184,064  represented  capital  sunk  in 
waterworks ;  of  the  1903  reproductive  debt  ($628,- 
230,760),  water  accounted  for  $423,478,959,  or 
about  two-thirds;  and  of  the  $790,570,726  (1904), 
$561,097,370,  or  over  two-thirds  as  already  shown, 
represented  waterworks  capital.  In  the  case  of  the 
United  Kingdom,  there  is  no  regular  official  return 
showing  the  part  water  undertakings  take  in  the 
annual  increase  of  the  municipal  reproductive  debt ; 
but  it  is  improbable  that  the  increase  is  mainly 
to  be  attributed  to  their  growth.  Their  value  in 
1900-1,  as  already  stated,  stood  at  $339,992,285,  or 
about  a  third  of  the  estimated  reproductive  debt  of 
the  following  year  (1902).  It  was  not  until  1905 
that  any  notable  transference  of  water  from  private 
to  public  control  took  place  in  the  United  King- 
dom, when  the  Metropolitan  Water  Board  took 
over  the  works  of  the  London  water  companies  at 
a  cost  of  $187,372,610.  The  conclusion  to  be  gath- 
ered from  the  foregoing  figures  to  1904  is  that, 
as  far  as  the  United  States  is  concerned,  the  in- 
crease in  public  ownership  obligations  is  at  pres- 
ent to  be  mainly  attributed  to  water,  as  to  the  pub- 
lic control  of  which  there  is  no  great  dispute. 

140 


THE  BURDEN  OF  OWNEESHIP  OBLIGATIONS 

The  following  comparative  table  showing  the 
indebtedness  of  a  group  of  representative  Ameri- 
can and  British  cities  in  1904-5,  whilst  obviously 
favorable  to  the  former,  would  be  still  more  so  if 
the  element  of  water  be  borne  in  mind : 


AMERICAN  CITIES^ 

Caty  Debt 

New  York $440,334,904 

Chicago  63,194,193 

Philadelphia 64,827,780 

St.  Louis 21,380,977 

Baltimore    23,605,106 

Cleveland    20,424,587 

Pittsburg    18,694,623 

Buffalo   18,209,713 

Detroit    5,467,824 

Milwaukee    9,069,541 

Louisville    7,827,490 

Minneapolis    8,105,163 

Indianapolis  4,766,147 

Kansas  City,  Mo.  . .  7,481,734 

Denver    4,217,343 

Los  Angeles  5,596,982 

Atlanta    3,296,114 

Albany    2,763,430 

Average  debt  of  18  American  cities  per  capita      $40  96 
^  U.  S.  Census  Bureau  Bulletin,  No.  50. 


141 


Per  Capita 

$113  25 

32  70 

46 

56 

34  23 

43 

81 

47 

99 

52 

98 

48 

95 

17 

22 

29  41 

35  71 

32 

40 

23  28 

42  47 

28 

36 

46 

23 

33 

37 

28  47 

THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

BRITISH  CITIES  1 
Cttjr  Debt  Per  Capita 

London    $576,187,270  $127  00 

Glasgow    77,462,475  99  18 

Liverpool    72,782,960  102  35 

Manchester  100,979,145  160  27 

Birmingham 77,523,375  148  32 

Leeds  55,395,015  121  08 

Sheffield    40,829,120  92  59 

Bristol 26,268,640  73  25 

Bradford 37,989,120  133  00 

Nottingham    32,330,205  128  35 

Salford   17,282,540  74  57 

Bolton   17,671,595  99  20 

Oldham  14,169,900  101  00 

Cardiff    17,813,655  105  30 

Preston    9,667,685  2  83  52 

Plymouth    8,897,440  76  59 

Huddersfield    16,641,390  175  08 

Blackpool    8,005,915  145  52 

Average  debt  of  18  British  cities  per  capita    $113  62 

In  order  that  American  citizens  may  be  brought 
to  realize  the  necessity  of  confining  their  public- 
ownership  operations  within  their  present  limits, 
it  will  be  well  to  focus  attention,  without  further 
comparison,  upon  the  dangerous  economical  po- 

>" Municipal  Year  Book,"  1906. 

'  $7,750,000  of  Preston  'a  debt  sunk  in  Municipal  Docks,  and  a 
further  sum  of  $1,000,000  is  to  be  or  is  being  spent  on  them. 
Every  year  Preston  taxpayers  have  to  pay  a  sum  of  $180,000  to 
make  up  the  deficiency.—' '  Lancashire  Post, ' '  March  2,  1906. 

142 


THE  BUEDEN  OP  OWNEESHIP  OBLIGATIONS 

sition  in  the  United  Kingdom,  which  has  been 
reached  by  the  pursuit  of  a  contrary  policy. 

A  committee  of  the  Birmingham  Chamber  of 
Commerce,  after  a  recent  investigation  into  the 
causes  for  the  great  increase  of  imperial  and  lo- 
cal expenditure,  and  its  effect  upon  trade  and  in- 
dustry, found^  that  whilst  State  expenditure  ex- 
ceeded that  of  local  authorities  up  to  the  year 
1898-9,  the  expenditure  of  the  latter  has  since  that 
year  increased  by  leaps  and  bounds,  so  that  in 
the  year  1904-5  they  estimated  that  the  total  ex- 
penditure of  the  United  Kingdom  was  over  fv30,- 
000,000  ($150,000,000)  in  excess  of  that  of 
the  State  expenditure.  In  the  year  1881-2, 
they  report,  "the  total  expenditure  of  the 
local  authorities  in  the  United  Kingdom  was 
£66,665,499  ($333,327,495),  or  £1.  17s.  lOd.  ($9.45) 
per  head  of  the  population.  In  the  year 
1902-3  the  figures  were  £152,165,000  ($760,- 
825,000),  or  £3.  lis.  lid.  (say  $18)  per  head,  rep- 
resenting a  total  increase  of  nearly  129  per  cent., 
and  a  per  capita  increase  of  a  little  over  ninety 
per  cent.  Calculating  the  total  expenditure  dur- 
ing 1903-4  and  1904-5  on  the  rate  of  increase  dur- 
ing the  previous  five  years,  we  estimate  that  the 

^ ' '  Eeport  on  the  Imperial  and  Local  Eevenue  and  Expenditure 
of  the  United  Kingdom"  (1906). 

143 


THE  DANGEES  OF  MUNICIPAL  OWNEKSHIP 

local  expenditure  for  1904-5  would  be  not  less 
than  £172,000,000  ($860,000,000),  or  £3.  19s.  8d. 
(almost  $20)  per  head  of  the  population,  repre- 
senting a  total  increase  of  158  per  cent.,  and  a  per 
capita  increase  of  110  per  cent.  The  progressive 
increase  of  local  expenditure  did  not  become  per- 
manent until  1890-1,  when  it  was  £70,734,168 
($353,670,840),  or  £1.  17s.  6d.  ($9.37)  per  head  of 
the  population,  so  that  if  that  year  had  been  taken 
as  a  starting-point,  the  increase  per  head  of  the 
population  works  out  at  a  higher  figure  than  that 
given  above."  The  Birmingham  committee,  it 
will  be  noted,  hit  upon  the  period  when  Municipal 
Trading  really  started  upon  its  career  in  the 
United  Kingdom.  Here  is  their  table  showing 
the  expenditure  of  local  authorities  by  aggregates 
for  successive  periods  of  ten  years : 

^^"s^ltMlrch^^^  Aggregate  expenditure  Yearly  average 

1882-1891   £666,070,072  £66,607,007 

($3,330,350,360)  ($333,035,035) 

1884-1893    £693,319,174  £69,331,917 

($3,466,595,870)  ($346,659,585) 

1890-1899    £874,781,535  £87,478,153 

($4,373,907,675)  ($437,390,765) 

1894-1903    £1,130,646,888  £113,064,689 

($5,653,234,440)  ($565,323,445) 

The  expenditure  during  the  ten  years  1894-1903, 
therefore,  exceeded  that  of  the  decade  1882-91  by 

144 


THE  BURDEN  OF  OWNERSHIP  OBLIGATIONS 

no  less  a  sum  than  £464,576,816  ($2,322,884,080), 
representing  an  average  increase  of  £46,457,682 
($232,288,410)  per  annum.  They  calculate  that 
if  the  difference  between  the  yearly  average  of  lo- 
cal expenditure  in  the  decade  1894-1903  and  the 
yearly  average  of  the  decade  1882-91,  as  shown 
above,  were  invested  in  real  reproductive  works  at 
five  per  cent,  simple  interest,  it  would  produce 
over  £23,000,000  ($115,000,000)  per  annum.  The 
figures  quoted  are  not  such,  in  their  opinion,  as 
can  be  regarded  by  commercial  men  with  equanim- 
ity, because  the  increased  expenditure  represents 
an  ever  increasing  burden  which  is  felt  more  and 
more  acutely  by  the  business  community,  from 
whom  the  bulk  of  local  revenue  is  derived.  Local 
taxes  levied  in  1902-3  were  nearly  £25,000,000 
($125,000,000)  in  excess  of  the  amount  for  1890-1; 
Government  contributions  to  local  services  were 
more  by  nearly  £8,000,000  ($40,000,000),  and  loans 
increased  by  £31,000,000  ($155,000,000).  They  at- 
tribute some  portion  of  the  increased  expendi- 
ture of  the  local  authorities  to  Municipal  Trading 
operations;  but  it  must  nevertheless  be  borne  in 
mind,  we  are  pertinently  told,  that  these  have  not 
been  instrumental  in  reducing  local  rates  (taxes). 
On  the  contrary,  they  add,  a  closer  examination  of 
the  figures  would  reveal  the  disquieting  fact  that 
the  extension  of  Municipal  Trading  has  been  ac- 
10  145 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

companied  by  an  accelerated  increase  in  local 
rates  (taxes)  and  Government  contributions. 

The  growth  of  local  taxation  can  best  be  indi- 
cated by  the  expansion  in  local  revenue  generally, 
which  the  Birmingham  Chamber  of  Commerce 
committee  also  critically  examined.  In  the  year 
1881-2,  they  showed  that  the  revenue  of  the  local 
authorities  of  the  United  Kingdom  from  all 
sources  amounted  to  £67,705,079  ($338,525,395) ; 
whilst  in  the  year  1902-3  (the  latest  year  for  which 
detailed  statistics  are  officially  published),  it  was 
£152,291,000  ($761,455,000),  representing  an  in- 
crease of  125  per  cent,  in  twenty-two  years.  Per 
head  of  the  population  the  amount  of  local  reve- 
nue in  1881-2  was  £1.  18s.  6d.  ($9.63),  as  com- 
pared with  £3. 12s.  ($17)  in  1902-3,  an  increase  of 
over  eighty-seven  per  cent,  per  head.  During  the 
five  years  previous  to  1902-3  the  local  income  of 
the  United  Kingdom  increased  at  the  average  rate 
of  over  £10,000,000  ($50,000,000)  per  annum,  so 
that  the  estimated  income  for  the  year  1904-5 
would  be  £172,000,000  ($860,000,000),  or  £3.  19s. 
8d.  (nearly  $20)  per  head,  representing  a  total  in- 
crease since  1881-2  of  over  154  per  .cent.,  and  a 
per  capita  increase  of  107  per  cent. 

The  same  story  is  to  be  told  of  assessments. 
The  local  government  returns  (for  1903-4)  show 
that  the  total  taxable  area  of  the  United  Kingdom 

146 


THE  BUEDEN  OF  OWNERSHIP  OBLIGATIONS 

was  assessed  in  1874-5  at  £115,646,631  ($578,233,- 
155) ;  whilst  in  1902-3  it  was  £191,106,528  ($955,- 
532,640),  an  increased  taxable  value  in  thirty 
years  of  £75,459,897  ($377,299,485).  To  an  Amer- 
ican citizen  these  figures  appear  small,  to  explain 
which  it  should  be  pointed  out  that  the  British 
system  of  assessment  is  not  estimated  as  in  Amer- 
ica, on  the  supposed  value  of  taxable  property,  but 
on  the  rental  value. 

The  enormously  increased  financial  involve- 
ments of  local  authorities  can  be  seen  from  the 
following  percentages,  taken  from  the  same  official 
source : 

Per  cent. 

Increase  in  amount  of  taxes  raised  between  1874 

and  1903  (30  years)   162.1 

Increase  in  assessment  value  of  taxable  properties 

during  same  period 63.3 

Increase  in  local  debt  during  same  period 299.3 

Increase  in  local  expenditure  between  1884-5 

and  1902-3  (18  years)  140 

For  the  purpose  of  illustrating  how  heavily 
these  increments  bear  upon  the  community,  I 
have  adapted  to  American  money  a  table  prepared 
by  Mr.  J.  Holt  Schooling,^  who  takes  the  first  three 
heads  of  increase  between  1874  and  1902,  and 
shows  how  they  worked  out  per  capita  in  the 
years  named: 

> "Local  Finance"  ("Fortnightly  Review,"  August,  1906). 
147 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 
AVERAGE   YEARLY   AMOUNT   OF   LOCAL   TAXES 


Per  Head  of 


Per  £1  ($5)of  Val-    ^''l.a  Deb^rt- 
uation  of  Property    „4..„Hi^„  ^.-.^  w«.,i 


Population  ^,l?^,%r^y    ^^-f^V^Sfltfor 

1874-75   $4.03  $0.83  $19.56 

1879-80   4.37  .83  26.97 

1884-85   4.77  .87  32.16 

1889-90   4.87  .91  34.91 

1894-95    5.62  1.04  39.08 

1899-1900    6.39  1.25  46.08 

1901-1902   7.12  1.33  52.64 

Here  we  find  the  two  sources  from  which  are 
drawn  the  increased  local  revenue— a  continu- 
ously expanding  tax-levy  side  by  side  with  an  en- 
hanced valuation  of  taxable  property.  Thus 
higher  taxes  per  £l  ($5)  are  charged  upon  an  in- 
creased assessment  of  property.  Of  course  a  lo- 
cal authority  which  wants  more  money  from  the 
citizens  may  fall  back  on  ringing  the  changes. 
Hesitating  to  raise  the  taxes,  it  has  only  to  in- 
crease the  assessments  (a  method  by  no  means  un- 
familiar to  the  American  taxpayer),  in  order  to 
obtain  the  desired  extra  revenue,  or  it  may  raise 
the  tax-levy  without  tampering  with  the  assess- 
ments. But  the  figures  show  that,  as  a  rule,  it 
boldly  does  both. 

To  the  above  table  may  be  added  the  per  capita 
increase  of  local  expenditure,  to  which  resort  is 
made  to  these  devices,  as  figured  by  the  Birming- 
ham Chamber  of  Commerce  Committee  in  the 
years  they  cover : 

148 


THE  BUEDEN  OF  OWNEESHIP  OBLIGATIONS 
INCREASE  OP  LOCAL  EXPENDITURE 

1890-1  $  9.37  per  head  of  population 

1902-3  18.00   "      "    " 

1904-5   (estimated)    ....     20.00   '*     **    '" 

The  foregoing  leads  one  to  suppose  that  the 
many  spending  authorities  of  the  United  King- 
dom, (to  quote  Mr.  Schooling)  are  apparently 
possessed  by  the  idea  that  the  taxpayer  is  the 
inexhaustible  goose,  which  lays  the  golden  eggs, 
and  that  they,  reckless  of  consequences,  are 
busily  engaged  in  killing  that  bird.  Wedged  in  be- 
tween the  municipal  councilor  and  official  and  the 
untaxed  voter  is  this  golden  goose— the  long-suf- 
fering citizen  and  the  group  of  long-suffering  cit- 
izens (trading  companies)  who  have  to  pay  for 
the  whims  of  the  one  and  the  privileges  of  the 
other.  It  must  be  conceded  that  the  British  tax- 
payer, singly  and  collectively,  allows  a  great  deal 
of  license  to  his  municipality.  But  he  cannot  very 
well  help  himself— he  does  not  represent  the 
larger  proportion  of  the  municipal  electorate  of 
the  British  Isles.  This  disability  arises  from  the 
social  injustice  of  the  franchise  laws,  which  or- 
dain much  taxation  without  representation,  and 
much  representation  without  taxation.  Corpo- 
rate bodies,  such  as  railway  companies,  and  in  fact 
all  limited  liability  concerns  whose  contributions 
to  local  taxation  form  an  enormous  sum,  do  not 
possess  a  municipal  vote,  and  are  therefore  de- 

149 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

nied  any  voice  in  the  disposal  of  the  money  they 
pay  to  their  local  authority.  Quite  a  common 
example  of  this  state  of  things  is  that  in  certain 
towns  one  single  company  or  a  group  of  companies 
are  the  largest  taxpayers,  and  their  taxes  form 
the  chief  part  of  the  whole  income  of  the  borough. 
On  the  other  hand,  their  employes,  with  a  voting 
qualification,  constitute  the  main  numbers  of  the 
population  of  such  manufacturing  towns,  and 
live  in  houses  of  so  low  an  assessment  value  that 
they  are  exempt  from  taxation.  The  Midland 
Eailway  pays  one-eighth  of  all  the  taxes  of  Derby, 
and,  moreover,  its  lines  run  through  800  parishes, 
to  each  of  which  it  pays  its  quota  of  taxes.  One 
ship-building  company  pays  one-sixth  of  all  the 
taxes  at  Jarrow.  There  is  also  a  colliery  com- 
pany which  pays  nearly  the  whole  of  the  taxes 
of  one  township,  whilst  the  colliers,  who  do  not 
pay  a  cent,  can  vote  down  the  one  or  two  officials 
at  the  colliery,  and  the  few  farmers  and  shopkeep- 
ers in  the  neighborhood.  None  of  these  com- 
panies has  a  single  vote. 

Some  official  figures  recently  published,  which 
have  been  strikingly  amplified  by  Mr.  Dixon  H. 
Davies,  illustrate  this  injustice  to  British  corpora- 
tions and  companies.  They  refer  to  half  a  dozen  se- 
lected boroughs  (named  below) ,  and  from  both  these 
sources  I  have  compiled  a  table  which  shows  the 

150 


THE  BURDEN  OF  OWNEESHIP  OBLIGATIONS 

taxable  value  of  the  companies'  properties;  the 
proportion  it  bears  to  the  taxable  value  of  the 
whole  borough;  the  number  of  non- voting  com- 
panies; the  number  of  voting  taxpayers;  the 
taxable  value  per  head  of  the  voting  taxpayers, 
and  the  taxable  value  per  head  of  the  taxpaying 
companies  who  have  no  vote : 


•ill     :?2    |5g     ■g§|  p^^  1^15. 

Borough             3«|       g    .      ||>        ^ll  ^.|o  ||«    > 

|o£    s||   |a«    «s^  a  an  a|ar 

Birmingham.  $4, 045,220    28.0    2,048    100,698  $103.25  $1,975 

Leeds 2,753,370    26.6    1,365      84,043  90.50  2,017 

Liiverpool  . . .  7,402,105    32.4    1,264    110,742  139.25  5,856 

estimated 

Manchester..  6,586,800    32.0    3,007    103,857  134.89  2,190.25 

Sheffield 2,685,905    30.1     1,320      78,722  79.00  2,030.75 

West  Ham  . .  2,246,485    34.7        191      40,070  105.00  11,761.50 

Holbom 1,578,685    30.6        625      12,017  295.25  2,525.75 

1  Assessed  on  the  estimated  rental  value. 

1,   2,   and   3,   Local  Government  Board  returns    (No.   215  of 
1906).     4,  5,  and  6,  Mr.  Dixon  H.  Daviea. 


Thus  we  see  that  between  a  third  and  a  fourth 
of  the  taxable  property  from  which  each  of  the 
boroughs  named  draw  their  revenue,  has  no  vot- 
ing representation  because  it  happens  to  be  owned 
by  companies;  whilst  the  taxable  value  per  head 
of  tax-paying  voters  shrinks  into  insignificance 

151 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

compared  with  the  taxable  value  per  head  of  tax- 
paying  companies  who  have  no  votes.  These  ex- 
amples are  typical  of  the  position  of  incorporated 
private  traders  in  all  the  municipalities,  and  indi- 
cate the  enormous  sum  which  is  annually  extracted 
from  them  by  local  authorities  without  let  or 
hindrance. 

In  the  case  of  the  railway  companies,  there  is 
double  injustice  inflicted,  for  the  taxes  they  pay  are 
in  part  spent  in  constructing  and  running  street- 
railway  systems  to  compete  with  their  services, 
which  sometimes  actually  run  parallel  with  the 
railway  lines.  These  municipal  street  railways  are 
often  run  at  a  loss;  as  taxpayers,  the  railway 
companies  have  to  meet  their  proportion  of  that 
loss,  and,  at  the  same  time,  have  to  suffer  a  shrink- 
age in  their  own  traffic  through  the  diversion  of 
much  of  it  to  the  municipal  tram-cars.  The  ag- 
gregate amount  of  local  taxes  paid  by  British  rail- 
ways is  no  less  than  eleven  per  cent,  on  their  net 
revenue,  or  one  per  cent,  on  their  total  ordinary 
stock.  The  following  figures  show  the  growing 
disproportion  between  the  taxes  paid  and  the  in- 
creased earning  power  and  capital  value  of  the 
lines: 

isai  1Q(U  Increase 

""*  ^^°*  in  decade 

Net  revenue  ....  $   185,500,000  $   213,300,000  15% 

Capital  raised  .  .     4,925,000,000  6,340,000,000  28% 

Taxes  paid 14,080,000  23,680,000  68% 

152 


THE  BUEDEN  OF  OWNERSHIP  OBLIGATIONS 

Whether  traffics  are  good  or  bad,  the  ratio  of 
working  expenses  to  receipts  high  or  low,  the  to- 
tal income  from  all  sources  great  or  little,  the  up- 
ward movement  of  local  taxation  levied  on  com- 
panies continues,  unaffected  by  the  pendulum 
swing  of  their  working. 

But  the  community  hardest  hit  are  the  house- 
holders of  the  thrifty  class,  whose  surplus  income 
is  limited  by  the  necessities  of  their  families.  The 
large  wealthy  companies  are  content  to  pay  and 
complain,  for  the  injustice  of  being  regarded  as 
the  milch  cows  of  the  municipalities  is  more  bear- 
able than  the  outlook  of  ruin  which  is  the  night- 
mare of  struggling  shopkeepers.  Local  taxes, 
so  many  shillings  in  the  pound,  come  round  every 
year,  and  must  be  paid,  often  by  those  who  can  ill 
afford  it,  and  paid,  too,  for  industries,  such  as 
electric  lights,  telephones,  workmen's  dwellings, 
harbors  and  docks,  and  a  score  of  other  things 
in  which  the  persons  taxed  have  no  earthly  inter- 
est. In  Birmingham,  quite  recently,  twenty-five 
members  of  the  Balsall  Health  Ratepayers '  Asso- 
ciation preferred  to  be  summoned  for  non-pay- 
ment of  taxes  as  a  protest  against  reckless  munic- 
ipal expenditure.  According  to  the  press  report 
of  the  police-court  proceedings,  the  defending  at- 
torney said  that  the  time  had  gone  by  when  tax- 
payers could  be  led,  like  sheep,  not  to  the  slaugh- 

153 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

ter,  but  to  be  shorn  without  protest.  They  felt  that 
the  City  Council  was  led  away  by  a  policy  of  so- 
called  efficiency,  and  in  the  opinion  of  his  clients 
no  policy  could  be  efficient  unless  it  was  founded 
on  justice  and  economy.  During  the  last  sixteen 
years  the  indebtedness  of  the  city  had  increased 
from  seven  to  fifteen  millions  sterling,  and  every 
child  born  in  the  city  owed  a  debt  of  $150,  which  it 
had  done  nothing  to  contract.  ''We  have  been 
taught  to  think  imperially,"  said  the  taxpayers' 
attorney,  ''and  we  have  perhaps  lost  the  focus  of 
local  matters,  and  seem  to  forget  that  any  im- 
perial prosperity  in  the  world  must  depend 
largely  upon  local  prosperity."  Having  publicly 
lodged  their  protest  in  this  way,  the  objectors  con- 
sented to  orders  for  payment  being  made  against 
them. 

By  the  public  health  act  of  1875,  British  muni- 
cipalities have  their  borrowing  powers  limited  to 
two  years'  assessment  value.  It  is  as  well  to 
repeat  that,  for  taxing  purposes,  property  in  the 
United  Kingdom  is  assessed  on  the  estimated  rent 
it  will  yield,  not  on  its  selling  value.  A  city, 
therefore,  whose  taxable  property  in  one  year  is 
assessed  at  $1,000,000,  cannot  borrow  more  than 
$2,000,000  on  the  security  of  the  taxes.  But  by 
obtaining  special  parliamentary  powers,  local  au- 
thorities manage  greatly  to  exceed  this  limit,  and 

154 


THE  BURDEN  OP  OWNERSHIP  OBLIGATIONS 

thus  involve  every  child  born  within  its  area  with 
a  liability  from  its  birth.  Liverpool's  debt  is 
300  per  cent,  over  and  above  the  security,  i.e., 
the  taxable  value,  or  a  debt  equal  to  three  years 
thereof;  while  Huddersfield  has  the  heaviest  per- 
centage of  any,  namely,  730.23  per  cent,  or  a  debt 
exceeding  seven  years'  taxable  value.  Stock- 
ton's is  the  same;  Blackburn's  debt  is  575  per 
cent,  over  its  annual  assessment  value,  or  five  and 
three-fourth  years;  and  in  seventeen  other  prin- 
cipal towns  the  borrowing  covers  not  less  than 
four  and  one-fourth  years  of  the  taxable  value. 

It  has  already  been  shown  that  a  large  propor- 
tion of  the  local  debt  of  the  country  is  incurred 
for  trading  enterprises  alleged  to  be  productive, 
and  defended  on  the  pretext  that  they  yield  prof- 
its for  the  relief  of  taxation.  This  fact,  while 
patent  enough  from  the  general  figures  previously 
quoted  in  this  chapter,  projects  with  greater  force 
if  we  observe  how,  in  a  number  of  municipalities, 
the  extent  to  which  ownership  and  trading  enter- 
prises are  indulged  in  determine  the  amount  of 
indebtedness  and  ratio  of  taxation;  so  that  both 
are  high  where  trading  is  largely  practised,  and 
are  low  where  it  is  kept  within  limits.  Thus  the 
tendency  of  debt  and  taxation  in  seventy-eight 
boroughs  in  England  and  Wales,  as  they  stood 
in  1903,  may  be  gaged  from  the  following : 

155 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

In  eleven  towns  where  the  proportion  of  "reproduc- 
tive ' '  debt  was  under  50  per  cent,  of  the  assessable  value, 
the  average  local  taxes  (excluding  the  poor  tax)  was 
only  26  per  cent,  on  the  assessment. 

In  sixteen  towns  where  the  proportion  of  ''reproduc- 
tive" debt  was  between  50  per  cent,  and  100  per  cent,  of 
the  assessable  value,  the  average  local  taxes  (excluding 
the  poor  tax)  was  27  per  cent,  on  the  assessment. 

In  twenty-five  towns  where  the  proportion  of  "repro- 
ductive" debt  was  between  100  per  cent,  and  200  per 
cent,  of  the  assessable  value,  the  average  local  taxes  (ex- 
cluding the  poor  tax)  was  28  per  cent,  on  the  assess- 
ment. 

In  twenty-six  towns  where  the  proportion  of  "repro- 
ductive" debt  was  over  200  per  cent,  of  the  assessable 
value,  the  average  local  taxes  (excluding  the  poor  tax) 
was  30  per  cent,  on  the  assessment. 

The  conclusion  is  self-evident,  and  were  it  nec- 
essary to  comment  further  upon  the  involvements 
with  which  British  municipalities  are  encumber- 
ing their  communities,  one  need  only  echo  what 
the  famous  French  economist,  M.  Leroy  Beaulien, 
recently  wrote:  ''Local  loans  in  England  often 
total  forty  millions  in  one  year,  whereas  in  France 
it  is  rare  for  half  that  sum  to  be  raised.  This 
enormous  and  colossal  borrowing  by  localities  in 
Great  Britain  fills  us  with  amazement  in  France, 
and  seems  to  us  to  be  the  weak  point  in  British 
finance.  Undoubtedly  England  has  benefited 
from  the  money  spent  on  the  educational  system, 

156 


THE  BURDEN  OF  OWNERSHIP  OBLIGATIONS 

the  hygienic  conditions  have  improved,  but  it 
seems  impossible  to  account  for  the  fantastical 
growth  of  local  expenditure  without  allowing  for 
some  exaggeration  and  waste.  The  policy 
adopted  in  many  towns  of  systematically  munici- 
palizing services  of  common  interest  is  the  point 
which  astonishes  us  most.  There  is  no  doubt 
that  in  these  days  extravagance  is  more  to  be 
feared  in  municipal  than  in  national  finance." 


167 


CHAPTER  IX 

THE  world's  GEEATEST  SPENDTHBIFT 

The  London  County  Council  so  designated  .  .  .  The  debt  of  Lon- 
don .  .  ,  The  purchase  of  the  water  companies  and  its  effect 
.  .  .  The  trading  commitments  of  the  County  Council  .  .  .  Their 
steamboat  failure  .  .  .  Exploded  prophesies  regarding  the  river 
service  .  .  .  The  Council's  tramways  .  .  .  Eelief  of  taxation 
mainly  from  rents  received  from  leasing  company  .  ,  .  Purchase 
of  Northern  system  by  Council  a  loss  to  taxpayers  .  .  .  The 
Council's  projected  tramway  developments  .  .  .  Enormous  cost 
per  mile  .  .  .  The  Council's  Works  Department,  its  constitu- 
tion, secrecy  and  faulty  estimates'  .  .  .  Mr.  Bernard  Shaw's  de- 
scription of  average  London  ratepayer  and  the  calls  the  Coun- 
cil 's  policy  of  extravagance  makes  upon  his  pocket  .  .  .  The  re- 
lations between  the  London  borough  authorities  and*  the  Council 
.  .  .  The  latter 's  ambition  to  absorb  the  former  .  .  .  Expendi- 
ture, debt  and  taxation  of  London  boroughs  .  .  .  Company  and 
Municipal  street  lighting  in  London  compared  .  .  .  Observa- 
tions thereon  .  .  .  Battersea  and  Poplar  as  examples  of  extrava- 
gant municipalities  .  .  .  Major  Darwen's  recital  of  conditions 
leading  to  Municipal  bankruptcy  .  .  .  Such  contingency  in  Lon- 
don checked  by  the  complete  defeat  of  the  Ownership  party  at 
the  borough  elections  of  November,  1906. 

IT  is  necessary  to  turn  from  the  general  to  the 
particular  in  order  to  drive  home  the  lesson 
to  be  conveyed  to  American  citizens  from  the  sta- 
tistics relating  to  municipal  debt,  taxes  and  as- 
sessments just  dealt  with.  For  this  purpose  an 
examination  of  the  trading  exploits  of  any  one  of 
the  English  provincial  cities  would  suffice,  inas- 
much as  they  are  all  more  or  less  alike  in  their 

158 


THE  WOKLD'S  GREATEST  SPENDTHRIFT 

loose  and  unbusinesslike  methods,  and  it  would 
not  be  easy  to  single  out  one  particular  city  as  a 
worse  offender  than  the  others  on  a  general  in- 
dictment. But  overshadowing  them  all  in  the 
magnitude  of  the  Municipal  Trading  schemes  car- 
ried on  within  its  immense  area  stands  the  me- 
tropolis, and  in  being  distinguished  from  them  in 
this,  as  well  as  in  size,  population,  wealth  and 
other  characteristics,  London  provides  a  scope 
for  municipal  maladministration  which  no  provin- 
cial city  can  hope  to  eclipse.  This  is  not  surpris- 
ing, as  its  inhabitants,  through  their  electoral 
apathy,  have  allowed  themselves  to  be  at  the  mercy 
of  the  central  authority  (the  London  County 
Council),  the  minor  authorities  (borough  coun- 
cils), and  a  host  of  other  spending  bodies.  The 
first-named  body  thereby  has  become  known  as 
the  world's  greatest  spendthrift;  in  fact,  as  one 
critic  has  expressed  it,  'Ho  view  Municipal  Trad- 
ing at  its  best,  or  at  its  worst,  we  must  concen- 
trate our  survey  on  the  London  area." 

The  spending  authorities  of  London  have  suc- 
ceeded in  incurring  a  debt  to  the  year  1904-5,  as 
already  mentioned,  of  $576,187,270,  or,  roughly,  of 
254  per  cent,  over  and  above  its  taxable  value.  If 
we  estimate  that  the  whole  British  local  debt  in  the 
same  year,  according  to  its  present  ratio  of  in- 
crease, stood  at  $2,610,000,000,  it  will  be  seen  that 

159 


THE  DANGEKS  OF  MUNICIPAL  OWNERSHIP 

London's  share  of  it  is  nearly  one-fifth.  Of  this 
debt  of  $516,187,270,  $226,488,095,  or  46.8  per  cent, 
was  incurred  in  respect  of  tramways,  workmen's 
dwellings,  water  supply,  electric  lighting,  and 
other  services.  The  total  annual  charge  for  the 
year  1904-5  for  interest  and  repayment  in  respect 
of  the  total  net  debt  amounted  to  $11,034,080,  of 
which  as  much  as  seventy-four  per  cent,  was  met 
out  of  the  taxes,  and  the  balance,  twenty-six  per 
cent.,  from  the  ''earnings"  of  revenue-producing 
services.  The  total  debt  has  increased  by  $209,- 
994,640,  as  compared  with  an  increase  of  $16,532,- 
125  in  the  previous  year. 

This  great  addition  to  the  debt  has  been  brought 
about  by  a  further  expansion  of  ownership  obli- 
gations in  the  establishment  of  the  Metropolitan 
"Water  Board,  which  took  over  the  water  under- 
taking from  the  companies  for  the  sum  of  $187,- 
372,610.  It  is  no  part  of  the  writer's  purpose  to 
question  the  expediency  of  transferring  water  from 
private  to  public  control.  But  it  has  to  be  com- 
mented in  passing  that  this  latest  example  of  the 
expropriation  policy  has  resulted  in  the  people 
of  London  having  to  pay  more  for  their  water. 
Here  is  a  typical  criticism  of  the  transaction:* 
' '  There  were  three  classes  concerned :    The  share- 

^ " Unconstitutional  Tendencies  of  Local  Government"  (Dixon 
H.  Davies). 

160 


THE  WOELD'S  GREATEST  SPENDTHRIFT 

holders  in  the  expropriated  companies,  the  rate- 
payers, and  the  consumers.  The  shareholders 
are  as  nearly  as  possible  as  they  were,  being  given 
an  equivalent  in  public  stocks  of  the  value  of  their 
former  holdings.  (They  have,  however,  been  trans- 
ferred from  being  persons  engaged  in  an  indus- 
trial enterprise  to  mere  bondholders  taking  no 
risk  nor  caring  greatly  whether  the  undertaking 
is  profitable  or  not,  so  long  as  the  taxpayers* 
property  is  good  for  the  annual  interest.  The 
working  under  public  management  shows  no  profit 
at  all,  so  the  ratepayers  are  no  better  off.)  The 
consumer  gets  the  same  water  as  before ;  the  only 
difference  is  that  he  has  to  pay  a  little  more  for 
it,  and  is  loudly  complaining  in  consequence.  The 
pretence  is  that  a  monopoly  has  been  suppressed. 
Yes,  and  another  monopoly,  that  of  the  authority, 
set  up.  King  Log  is  replaced  by  King  Stork, 
with  the  difference  that  there  was  the  authority  to 
control  the  water  company,  but  who  is  there  now 
to  control  the  authority?'* 

If  the  amount  of  the  new  debt  incurred  in  re- 
spect of  the  purchase  of  the  water  undertakings 
($187,372,610)  be  deducted  from  the  whole  debt 
of  London  ($576,187,270)  we  have  a  debt  of  $328,- 
814,660  created  by  the  other  London  authorities, 
for  $290,110,945  of  which  the  principal  spending 
bodies  are  answerable,  e.g.: 

11  161 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

London  County  Council  debt $226,170,990 

London  Borough  Council  debt 63,939,955 

$290,110,945 

The  balance  ($38,703,715)  may  be  allocated  to 
the  smaller  authorities,  such  as  boards  of  guar- 
dians, etc.,  into  whose  administration  trading,  as 
understood,  does  not  enter. 

Of  the  County  Council  net  debt  of  £45,234,198 
($226,170,990)  at  March  31,  1906,  shown  above, 
according  to  Lord  Welby  (chairman  of  the  Coun- 
cil's finance  committee),  £6,687,366  ($33,436,830) 
was  remunerative,  or  ''reproductive."  In  other 
words,  this  latter  sum  represents  the  amount  of 
money  the  Council,  according  to  its  chairman,  has 
sunk  in  trading  schemes— in  steamboats,  tram- 
ways, electricity  and  housing.  But  the  Council 
are  not  content  to  leave  it  at  that.  At  the  end  of 
1905  they  were  committed  to  further  capital  ex- 
penditure of  $30,000,000  for  tramway  extensions 
and  electrification  (which  will  make  their  tram- 
way debt  $55,000,000) ;  $22,500,000  for  an  electric- 
supply  undertaking,  covering  an  area  of  380 
square  miles;  and  $11,170,000  for  further  work- 
ing-class dwellings  (which  will  bring  the  Coun- 
ciPs  housing  estate  to  $25,000,000).  Here  we 
have  a  certain  addition  of  $63,670,000  to  the  pres- 
ent capital  involvements  in  trading  schemes  ($33,- 

162 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

436,830),  making  a  total  of  $97,106,830,  exclusive 
of  considerable  sums  to  be  or  being  spent  in  street 
improvements  necessary  solely  on  account  of  the 
tramways. 

The  failure  of  the  Council  to  run  a  service  of 
steamboats  on  the  Thames— a  pet  scheme  they 
took  up  with  great  enthusiasm— is  well  known. 
A  capital  sum  of  £304,000  ($1,520,000)  has  been 
spent  on  them.  The  loss  on  working  for  nine  months 
ending  March  30,  1906,  was  nearly  £51,300 
($256,500),  whilst  the  estimated  deficit  for  the 
year  1906-7  is  £52,000  ($260,000).  So  that  ever 
since  the  service  has  been  municipalized  it  has 
taken  approximately  $1,000  a  week  out  of  the 
pockets  of  London  taxpayers.  In  a  period  of 
four  weeks  $55,000  had  represented  the  expenses 
and  $27,000  the  receipts.  Put  briefly,  $10  had 
been  spent  on  the  municipalized  service,  whilst 
only  $5  had  been  earned.  Before  the  hapless  mu- 
nicipal steamboats  were  inaugurated,  some  of  the 
leading  spirits  of  the  Council  speculated  freely  as 
to  the' 'profits "which  would  be  derived  therefrom 
for  the  benefit  of  the  taxpayers.  Sir  E.  Cornwall,^ 
then  chairman  of  the  Rivers  Committee,  thought 
they  would  yield  £90,000  ($450,000)  per  annum. 
Indeed,  he  went  further,  for  he  believed  ''that  a 

' '  *  Report  of  the  Rivers  Committee  to  the  Council, ' '  January, 
1902. 

163 


THE  DANGEES  OF  MUNICIPAL  OWNEKSHIP 

greater  success  would  follow  the  undertaking  than 
ever  the  most  sanguine  councilors  anticipated— 
that,  in  fact,  the  undertaking  offered  startling  pos- 
sibilities of  success. ' '  Before  the  parliamentary 
committee  which  sat  in  May,  1903,  he  improved 
on  this  augury  by  saying  that  the  Council  felt 
confident  that  the  service  would  at  once  earn 
£98,960  ($494,800).!  Mr.  John  Burns,  before  the 
same  committee,  was  less  sanguine.  He  was  re- 
ported as  saying  that  he  did  not  think  the  loss 
would  be  more  than  $30,000  or  $35,000  at  the  out- 
side. It  was  also  submitted  on  behalf  of  the 
Council  before  the  same  committee  that ' '  the  loss, 
even  if  there  was  a  loss  at  all,  would  be  a  very 
small  one,  and  that  the  charge  upon  the  rates  would 
be  so  slight  as  to  be  absolutely  inappreciable." 
Well,  so  far,  the  charge  upon  the  rates  (taxes) 
consequent  on  the  Council  running  steamboats 
has  proved  to  be  a  third  of  the  capital  spent,  or 
$500,000.  The  Council  have  acknowledged  their 
defeat  by  discontinuing  the  winter  service ;  but,  of 
course,  capital  charges,  cost  of  ofl&cials,  etc.,  are 
still  accruing. 

In  the  working  of  the  Council's  tramway  sys- 
tem, as  will  be  shown,  a  great  loss  will  fall  upon 
London  taxpayers  through  the  Council  not  con- 
tinuing to  lease  the  more  prosperous  portion  of  the 
system  (the  Northern),  instead  of  deciding  to  work 

»" London  Times,"  May  9,  1903. 
164 


THE  WOELD'S  GREATEST  SPENDTHEIFT 

it  themselves.  In  the  chapter  on  ''Profits"  an 
examination  has  been  made  of  the  tramway  ac- 
counts to  show  that  nearly  the  whole  of  the  sum 
placed  in  relief  of  taxation  has  come  from  rents 
received  by  the  Council  from  the  leasing  company. 
So  far  the  experience  of  municipal  tramways  in 
London  amounts  to  this :  that  the  Council,  on  de- 
ciding to  expropriate  a  tramway  system,  sacrifices, 
at  the  start,  a  considerable  annual  rental  received 
from  the  company,  but  the  system  may  succeed,  on 
municipal  operation,  in  yielding  a  small  profit.  The 
difference  between  the  large  rental  and  the  small 
profit  therefore  constitutes  a  wholly  unnecessary 
loss.  As  far  back  as  1896,  before  the  Council 
could  obtain  ownership  of  the  major  portion  of 
the  Northern  lines,  they  were  at  loggerheads  with 
the  North  Metropolitan  Tramway  Company.  The 
lines  of  a  smaller  company  in  the  north  of  London 
had  about  then  been  purchased  by  the  Council. 
As  the  North  Metropolitan  Company's  lines  had 
been  built  up  piece-meal  and  at  different  times,  the 
whole  system  could  not  become  purchasable  under 
the  expropriation  clause  of  the  tramway  act  of 
1870  en  hloc,  but  in  sections,  as  the  franchise  of 
each  expired.  The  Council  would  have  to  buy  it 
up  bit  by  bit.  Three  suggestions  for  settlement 
were  at  length  drafted,  namely— 

1.  The  North  Metropolitan  Company  offered  to  lease 
from  the  Council  the  lines  of  the  smaller  system  and 

165 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

work  them  in  conjunction  with  their  own  until  1910,  to 
which  year,  from  1896  (fourteen  years)  the  company 
were  to  pay  an  aggregate  sum  in  relief  of  taxation 
amounting  to  $2,319,535. 

2.  The  Council  to  purchase  the  company's  lines  as 
the  leases  fell,  and  re-let  them  to  the  company  on  leases 
to  expire  in  1910,  the  relief  of  taxation  by  this  ar- 
rangement for  the  fourteen  years  being  estimated  at 
$1,634,810. 

3.  The  Council  to  purchase  and  work  the  lines  them- 
selves at  an  estimated  relief  to  taxation  during  the  same 
period  of  $1,406,515. 

The  first  two  proposals  showed  that  the  leasing 
system  promised  more  profit  to  the  taxes  than  had 
the  Council  purchased  and  worked  the  lines  them- 
selves. In  the  end  (1897)  the  moderate  section 
of  the  Council  succeeded  in  getting  the  second 
proposal  adopted,  and  the  lines  became  municipal 
property  and  leased  to  the  company,  the  leases  to 
expire  in  1910.  But  the  Council,  whose  political 
complexion  has  considerably  changed  since  then, 
had  not  the  patience  to  wait  until  1910  to  get  pos- 
session. In  April,  1906,  they  acquired  the  North- 
ern lines  from  the  company  for  the  sum  of  $5,477,- 
345.  In  addition  they  are  spending  $17,500,000 
on  converting  them  from  horse  to  electric  traction. 
Apart  from  the  speculative  nature  of  this  extra 
outlay,  in  view  of  the  powerful  opposition  of  the 
motor  omnibuses,  and  the  fact  that  it  will  yield 

166 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

no  return  for  some  time  to  come,  a  considerable 
loss  has  been  thrown  on  the  taxes  by  the  company 
being  bought  out  before  its  time.  By  1910  it 
would  have  paid  the  Council,  as  rent,  etc.,  a  sum 
of  $1,634,810  on  the  leasing  arrangement  made  in 
1897  just  referred  to,  of  which  sum,  up  to  1905, 
$959,975  was  paid.  As  the  company  has  now 
ceased  to  exist,  and  there  are  no  more  contribu- 
tions in  aid  of  taxation  coming  from  that  source, 
there  is,  therefore,  a  loss  to  the  taxpayers  of  the 
difference  between  $1,634,810  and  $959,975,  or 
$674,835. 

Under  the  lease,  the  company  paid  the  Council 
an  annual  rental  of  $225,000,  and  an  additional 
twelve  and  one-half  per  cent,  of  the  increased 
gross  receipts,  as  compared  with  the  gross  re- 
ceipts in  1895.  Here  are  some  conditions  em- 
bodied in  the  lease,  which  conclusively  show  that 
the  interests  of  the  traveling  public  and  the  tram- 
way employes  were  fully  safeguarded,  and  that, 
under  municipal  working,  the  public  will  not  be 
given  a  better  service: 

1.  The  company  are  not  to  raise  the  fares  on  Sun- 
days and  bank  holidays. 

2.  The  company  are  to  run  workmen's  cars  between 
3  and  8  a.  m.,  whenever  the  Council  may  require  them  to 
do  so,  at  Id.  (two  cents)  fares  for  the  whole  distance, 
with  a  2d.  (four  cents)  return  ticket  available  at  any 
time.     (A  similar  obligation  the  Council  forced  on  the 

167 


THE  DANGEBS  OF  MUNICIPAL  OWNEESHIP 

Central  London  Railway  and  on  other  lines,  with  the 
result  that  the  latter  run  their  workmen's  trains  at  a 
great  loss.  On  the  other  hand,  the  Council  only  recently 
objected  to  workmen  riding  on  their  own  cars  at  re- 
duced fares,  and  attempted  to  raise  them.  The  Council, 
therefore,  wring  concessions  from  railway  companies 
on  behalf  of  the  working-classes  which  they  themselves 
in  running  municipal  tram-cars  are  not  disposed  to 
grant. ) 

3.  The  company  are  to  work  any  new  lines  that  may 
be  made  by  the  Council,  and  pay  the  Council  eight  per 
cent,  per  annum  on  the  cost  thereof  until  midsummer, 
1910. 

4.  The  company  are  not  to  increase  the  hours  of  labor 
nor  reduce  the  rates  of  wages  of  their  employes. 

5.  They  are  to  pay  rates  and  taxes  on  the  value  of  the 
lines. 

6.  They  are  to  work  the  lines  by  electric  or  other 
traction,  if  and  when  required  by  the  Council,  and  on 
most  advantageous  terms  to  the  Council. 

7.  They  are  to  lay  down  at  their  own  cost,  when  re- 
quired by  the  Council,  a  mile  of  tramway  for  the  pur- 
pose of  experimenting  as  to  the  suitability  of  any  im- 
proved system  of  traction. 

8.  They  are  to  set  aside  a  sum  equal  to  £12,500 
($62,500)  a  year  as  a  fund  to  be  applied  for  renewals 
or  reconstruction  of  the  lines,  which  they  are  to  keep  in 
good  condition,  to  the  satisfaction  of  the  Council. 

In  view  of  such  restrictions  and  control,  which 
the  company  faithfully  respected,  it  is  not  clear 
to  what  degree  the  public  will  be  better  advan- 
taged by  the  transference  of  the  lines  to  the  Coun- 
cil. 

168 


THE  WORLD'S  GREATEST  SPENDTHEIFT 

There  remains  a  word  to  be  said  regarding  the 
general  tramway  schemes  evolved  by  the  Council. 
The  total  amount  of  capital  expenditure  of  the 
undertakings,  including  sums  already  incurred  on 
lines  opened  for  traflfic  or  to  be  incurred  on  others 
in  prospect,  is  $55,000,000.  It  may  be  thought 
that  such  an  outlay  represented  a  considerable 
mileage,  but  actually  it  is  only  the  ultimate  develop- 
ment of  a  system  comprising  121  miles  of  double 
track.  This  means  approximately  the  investment 
of  a  sum  of  $10,000,000  in  order  to  provide  eleven 
miles.  One  wonders,  with  ''Engineering,'*  if  any 
tramway  system  in  the  kingdom,  or  in  the  world, 
can  rival  this  achievement.  "If  that  were  to  be 
the  end  of  all  expenditure  on  tramway  matters," 
remarks  that  journal,  ''one  might  be  inclined  to 
say:  'the  money  's  spent,  and  there  's  an  end  of 
it;  least  said,  soonest  mended.'  But  we  are  not 
nearly  at  the  end,  if  all  these  extensions  are  to  be 
promoted,  and  the  ratepayers  of  London  may  well 
ask  what  will  the  total  expenditure  be  when  the 
Council's  highway  committee  is  at  length  satis- 
fied?" 

There  is,  indeed,  no  end  in  sight  to  the  vault- 
ing ambitions  of  the  London  County  Council. 
Closely  connected  with  its  tramway  policy  is  the 
scheme  it  is  now  maturing  for  obtaining  a  muni- 
cipal monopoly  for  the  supply  of  electricity  in  bulk 

169 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

over  the  London  area.  This  is  dealt  with  else- 
where.* The  development  of  its  wasteful  hous- 
ing schemes  in  suburban  areas^  is  also  an  offshoot 
of  its  tramway  extensions.  In  course  of  time 
the  whole  working-class  population,  snugly  housed 
in  municipal  dwellings  on  the  outskirts,  may  be 
carried  to  and  from  their  place  of  occupation  in 
municipal  tram-cars,  and  by  the  extension  of  both 
dwellings  and  cars,  their  place  of  occupation  will 
probably  be  the  Council's  "Works  Department. 

This  mysterious  branch  of  the  Council's  trad- 
ing operations  merits  some  attention.  According 
to  the  Council's  report  for  1904-5,  to  the  end  of 
that  year  it  had  works  in  course  of  execution  in- 
volving an  expenditure  of  £1,351,962  ($6,629,810) ; 
it  paid  in  wages  £278,243  ($1,391,215) ;  it  employed 
on  the  average  3,282  men;  and  the  Council  cred- 
its it  with  making  a  profit  of  £23,794  ($118,970). 

Here  is  what  a  Moderate  member  of  the  Coun- 
cil '  says  of  the  Works  Department : 

So  far  as  the  Works  Department  is  concerned,  we,  the 
Moderate  Party,  are  necessarily  considerably  in  the  dark 
as  to  its  administration,  owing  to  the  fact  that  the  Pro- 
gressive Party  have  abused  the  power  with  which  their 
majority  provides  them,  by  refusing  to  admit  any  mem- 

^  See  chapter  on  * '  Electric  Light  and  Power  Monopoly.  * ' 
'  See  chapter  on  ' '  Housing. ' ' 

'Mr.  William  Hunt,  before  the  London  Municipal  Society,  July  11, 
1906. 

170 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

ber  of  the  Moderate  Party  on  to  the  Works  Committee. 
(This  will  strike  the  American  public  as  an  unusual 
proceeding  as  in  all  such  bodies  the  minority  party 
should  of  right  be  represented.)  It  is  not  so  long  ago 
since  the  accounts  in  connection  with  the  Works  Depart- 
ment were  manipulated  so  as  to  show  a  profit.  The 
manner  adopted  was  that  some  of  the  profit  was  taken 
off  a  successful  job,  and  placed  to  the  credit  of  a  job 
which  would  otherwise  have  shown  a  considerable  loss. 
So  far  as  the  alleged  surplus  profits  by  the  Works  De- 
partment is  concerned,  this  is  largely  the  result  of 
establishing  a  high  schedule  of  prices  upon  which  to 
work.  By  this  means  it  is  far  from  difficult  to  show  a 
profit,  and  by  largely  overestimating  in  the  beginning, 
it  is  easy  to  represent  that  a  considerable  sum  has  been 
saved  to  the  ratepayers  by  the  Works  Department  under- 
taking the  work.  As  an  illustration  of  the  enormous 
saving  to  the  rates  invariably  produced  by  putting  the 
work  out  to  tender  by  private  contractors,  in  lieu  of  it 
being  offered  only  to  the  Works  Department,  let  me 
give  you  the  following  example  which  occurred  in  July 
of  1904.  The  Main  Drainage  Committee  in  their  report 
for  July  7,  1904,  in  regard  to  the  main  drainage  exten- 
sion (Southern  outfall  sewer  enlargement)  stated  that 
the  chief  engineer's  estimate  of  the  cost  of  the  work  was 
£470,979  ($2,354,895) ;  whilst  the  lowest  tender,  namely, 
that  of  the  Westminster  Construction  Company,  London, 
was  £348,416  ($1,742,080).  As  regards  the  main  drain- 
age extension  (Northern  low-level  sewer  (No.  2),  section 
No.  1),  the  same  report  stated  that  the  chief  engineer's 
estimate  of  the  cost  of  the  work  was  £117,000  ($585,000) ; 
whilst  that  of  the  lowest  tender,  namely,  that  of  William 
Kennedy,  Limited,  London,  was  £82,510  ($412,550). 
The  estimates  of  the  chief  engineer  for  the  cost  of  these 
two  works  therefore  amounted  to  £587,979  ($2,939,895) ; 

171 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

whilst  the  two  lowest  tenders  for  these  same  two  works 
amounted  to  £430,926  ($2,154,630),  representing  a  sav- 
ing of  £157,053  ($785,265). 

These  examples  of  overestimation  were  capped 
by  a  gross  underestimation  of  the  building  of  the 
Horton  Asylum.  The  lowest  private  tender 
amounted  to  £296,000  ($1,480,000) ;  the  Works  De- 
partment's bid  was  £284,400  ($1,422,000).  The 
Department  undertook  the  work,  which  was  to  be 
completed  by  the  end  of  September,  1900.  It  took 
three  years  longer.  By  June,  1903,  the  Depart- 
ment's estimate  of  the  work  had  jumped  to  £291,- 
165  ($1,455,825),  and  the  actual  cost  came  out  at 
£329,044  ($1,645,220),  an  excess  over  the  final  esti- 
mate of  £37,879  ($188,395),  and  over  the  original 
estimate  of  £44,644  ($223,220). 

Why  and  wherefore  the  London  County  Coun- 
cil is  able  to  conduct  its  Works  Department  on 
methods  which  only  mean  that  when  work  is  not 
offered  for  tender,  but  is  carried  out  by  this  de- 
partment, it  is  really  given  to  the  highest  bidder 
(that  is,  the  Council  itself),  is  picturesquely  ex- 
plained by  Mr.  Bernard  Shaw,  who,  whilst  a  sup- 
porter of  the  Council's  policy,  is  not  adverse  to 
playing  the  part  of  the  candid  friend.  The  Coun- 
cil, says  he, 

goes  to  many  an  unfortunate  wretch  grimly  struggling 
with  poverty  in  a  little  shop,  underfed,  underclothed, 

172 


THE  WOELD'S  GEEATEST  SPENDTHBIFT 

underhoused,  and  consequently  desperately  in  want  of 
more  money  to  spend  on  himself  and  his  family.  Tak- 
ing him  by  the  scruff  of  the  neck,  it  says  to  him,  '  *  Come : 
you  must  invest  in  the  general  prosperity  of  this  mag- 
nificent metropolis,  of  which  you  are — or  ought  to  be — 
proud  to  be  a  citizen.  You  must  no  longer  cross  the 
Thames  in  a  wretched  penny  ferry-boat :  you  must  build 
a  colossal  tower  bridge,  with  splendid  approaches;  or 
you  must  pass  underneath  in  tubular  triumphs  of  modern 
engineering.  You  must  no  longer  walk  through  slimis 
from  the  Strand  to  Oxford  Street;  you  must  make  a 
new  and  lordly  avenue,  flanked  with  imposing  buildings. 
And  you  must  cheer  yourself  up  with  parks  and  bands, 
and  run  delightful  steamboats  on  the  river  for  your 
recreation  on  summer  evenings. "  Is  it  any  wonder  that 
the  unhappy  victim  of  this  comprehensive  civic  patriot- 
ism turns  savagely  on  his  progressive  benefactors,  and 
asks  them  whether  they  suppose  his  name  is  Carnegie, 
or  Pierpont  Morgan,  or  Rothschild,  that  he  should  be 
forced  into  the  schemes  of  millionaires?  And  the  irony 
of  the  proposals  is  the  more  biting  as  he  well  knows 
that  if  the  improvements  happen  to  affect  his  own 
business  beneficially,  his  landlord  will  take  the  first 
opportunity  to  appropriate  the  increment  by  putting 
up  his  rent.  This  grievance  is  one  which  cannot  be 
argued  away,  and  cannot  without  gross  callousness  He 
disregarded.  .  .  .  We  have  no  right  to  force  on  people 
conveniences  that  they  cannot  afford.  When  a  muni- 
cipality which  can  borrow  at  less  than  four  per  cent., 
deliberately  extorts  capital  for  public  works  from  trades- 
men who  have  to  raise  it  from  ten  per  cent,  to  forty  per 
cent.,  or  even  more,  it  is  clearly  imposing  the  grossest 
unthrift  on  its  unfortunate  constituents.^ 

*■ '  *  The  Common-Sense  of  Municipal  Trading, ' '  chapter  x. 

173 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

But  what,  it  may  be  asked,  will  befall  the  "un- 
fortunate wretch,  underfed,  underclothed  and  un- 
derhoused,"  when  the  socialists,  who  are  bent  on 
capturing  the  Council  at  the  March  elections  of 
1907,  succeed  in  materializing  their  program,  a 
few  items  of  which  are:  Municipal  workshops, 
stores,  milk  and  bread  shops,  and  dairy  farms; 
free  traveling  for  workmen  to  and  from  work; 
municipal  coal  stores  and  collieries;  municipal 
farm  colonies  for  the  unemployed  (paid  for  by  a 
direct  tax  on  income  derived  from  private  indus- 
trial concerns) ;  and  municipal  clothing  factories? 

The  "progressive"  policy  pursued  by  the  Lon- 
don County  Council  is  naturally  a  direct  incite- 
ment to  the  promotion  of  such  a  socialistic  pro- 
gram. The  same  may  be  said  of  the  record  of  the 
borough  councils  of  the  Metropolis.  These  num- 
ber twenty-eight,  and  they  go  their  own  way  under 
the  statutory  powers  they  enjoy,  though  the 
County  Council  watch  them  with  a  supervising 
eye.  In  the  main,  they  have  been  animated  until 
recently  by  the  same  ambitions  as  the  Council  are. 
The  latter  body  hold  them  in  check,  not  so  much 
from  considerations  of  public  policy  as  from  a 
desire  to  keep  their  wings  clipped,  lest  they  should 
mount  heights  equal  to  and  even  exceeding  those 
which  the  Council  have  already  reached.    The 

174 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

borough  councils  are  impatient  of  the  interference 
and  authority  exercised  by  the  County  Council; 
whilst  the  latter,  with  octopus-like  tendencies, 
resent  their  very  existence.  The  superior  au- 
thority, in  fact,  seeks  to  acquire  the  whole  admin- 
istrative machinery  of  the  minor  bodies,  including 
their  trading  undertakings,  and  to  centralize  the 
vast  work  of  governing  the  entire  Metropolis 
from  Spring  Gardens.  Their  aim  is  to  abolish 
the  borough  councils  altogether.  Jealous  of  the 
powers  of  the  local  councils  to  build  luxurious  li- 
braries, baths  and  wash-houses,  model  dwellings, 
and  electricity  works,  the  central  authority  re- 
gards these  as  so  much  game  which  should  fall  to 
them,  and  not  be  divided  between  twenty-eight 
other  bodies.  Perhaps  the  borough  councils  have 
deserved  the  ill-will  of  the  higher  authority.  The 
latter  they  were  really  created  to  checkmate,  and 
were  invested  with  powers  which  otherwise  the 
Council  would  doubtless  have  acquired.  Hence 
they  are  a  thorn  in  the  side  of  the  Council;  they 
prevent  the  Council  from  realizing  their  desire  to 
be,  not  the  paramount  authority,  but  the  only 
authority  for  London. 

The  abolition  of  the  borough  authorities,  and 
the  transfer  of  their  functions  to  the  Council, 
would  only  mean  that  the  taxpayers*  eggs  would 

175 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

all  be  placed  in  one  basket.  The  failure  of  Wool- 
wich, Bermondsey  or  Marylebone  to  conduct  an 
electric  lighting  undertaking  would  not  involve 
a  loss  confined  to  the  taxpayers  of  those  districts, 
as  at  present ;  the  loss  would  be  shared  alike  by  all 
the  other  districts.  There  are  numberless  un- 
profitable and  comparatively  unused  borough 
baths  and  wash-houses  (built  on  the  fallacy  that 
if  a  local  authority  provides  these  establishments, 
the  people  would  become  clean),  and  the  losses 
on  these  would  be  similarly  distributed.  London, 
in  density  of  population,  though  not  of  course  in 
area,  may  be  classed  with  an  American  state,  and 
the  counties  and  townships  of  the  latter  with 
the  borough  divisions  of  London.  An  American 
township  would  resent  having  to  pay  for  follies 
committed  by  another  township.  At  the  back  of 
the  London  County  Council's  scheme  of  centrali- 
zation to  bring  the  whole  area  of  London  under 
their  sole  jurisdiction  are  their  deeply-laid  plans 
for  developing  their  municipalization  policy,  to 
which  the  borough  councils  are  often  an  obstacle. 
Indeed,  the  County  Council  have  only  been  able  to 
extend  their  tramways  through  the  good-will  of 
the  borough  authorities— when  they  can  obtain 
it.  The  latter,  if  they  elect,  can  exercise  the  veto 
they  possess  of  keeping  out  tramways  from  their 

176 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

areas  altogether.  Chelsea,  for  example,  has  for 
some  years  past  barred  the  County  Council  from 
running  cars  in  the  district.  Holborn  is  also  op- 
posing the  Council's  projected  extensions  through 
its  territory.  As  the  progressive  party  of  the 
County  Council  have  declared  that  they  must 
stand  or  fall  by  their  tramway  policy,  to  oppose 
that  policy  is  the  unforgivable  sin. 

It  is  obvious  then  that  the  friction  between  the 
minor  and  central  authorities  of  London  has  an 
important  bearing  upon  the  whole  principle  of 
public  ownership,  because  it  illustrates  that  a  du- 
plication of  authorities  means  a  conflict  of  mu- 
nicipal ambitions.  The  borough  councils  may  be 
deemed  a  useful  stumbling-block  to  the  designs  of 
the  authorities  at  Spring  Gardens ;  but  their  atti- 
tude is  only  that  of  Satan  rebuking  sin.  They 
are  themselves  deeply  involved  in  trading  opera- 
tions. Extravagance  in  this  and  other  directions 
is  their  watchword.  At  present  their  total  debt 
amounts  to  $63,939,955.  The  following  table 
(adapted  from  figures  prepared  by  Mr.  Arthur 
Tower,  borough  treasurer  of  Islington),  shows 
how  this  sum  works  out  per  capita  in  the  twenty- 
eight  districts  whose  collective  indebtedness  make 
up  this  sum,  and  also  how  local  expenditure  and 
taxation  bear  on  the  population  in  the  same  way : 

la  177 


THE  DANGEES  OF  MUNICIPAL  OWNEKHHU:' 

Local  Expenditure 
Borough  per  head  of 

Population 

Battersea $12.50 

Bermondsey    17.00 

Bethnal  Green  8.50 

Camberwell 11.50 

Chelsea    21.00 

Deptford  11.00 

Finsbury  17.50 

Fulham   10.50 

Greenwich 12.50 

Hackney    11.00 

Hammersmith 12.50 

Hampstead   22.00 

Holborn 31.00 

Islington   10.50 

Kensington  21.50 

Lambeth    12!00 

Lewisham    12.50 

Paddington 17.00 

Poplar   14.50 

St.  Marylebone 23.00 

St.  Pancras 13.50 

Shoreditch 13.50 

Southwark 12.00 

Stepney  11.00 

Stoke  Newington 12.00 

Wandsworth 12.50 

Westminster  54.50 

Woolwich 9.00 

It  will  be  seen  that  the  percentage  of  taxation 
levied  in  these  London  districts  varies,  and,  as  in 
the  provincial  towns,  it  is  high,  as  a  general  rule, 

178 


[ndebtedness  i 
per  head  of 
Population 

Approximate 

Percentage  of 

Taxes  levied  on 

Rental  Value 

of  Property 

Per  cent. 

$85.50 

411^ 

103.00 

46>^ 

56.50 

41 

66.50 

45 

139.00 

35 

72.00 

40 

111.00 

36 

77.00 

37>^ 

75.00 

41 

74.00 

39y2 

87.50 

38 

157.50 

36 

197.50 

35 

74.50 

36>4 

142.50 

33 

72.00 

38y2 

73.50 

37>^ 

115.50 

S2y2 

73.00 

60 

216.00 

ssy2 

104.00 

35^ 

106.00 

40>^ 

79.00 

37 

65.50 

45 

79.50 

36 

71.00 

37 

362.50 

3sy2 

73.50 

40 

THE  WORLD'S  GREATEST  SPENDTHRIFT 

in  proportion  to  the  extent  to  which  the  local  au- 
thorities engage  in  trading  pursuits.  In  business 
centers  like  Holborn  and  Westminster,  the  expen- 
diture, debt  and  taxation  per  head,  based  on  the 
night  population  (which  is  small),  would  be  con- 
siderably less  per  head  if  based  on  the  day 
population,  who  contribute  most  of  the  taxation. 
In  these  districts,  therefore,  trading  (while  pres- 
ent) does  not  account  for  the  high  per  capita.  In 
other  cases,  also,  the  excessive  cost  of  poor  law  ad- 
ministration, and  extravagance  in  the  ordinary 
work  of  local  government,  account  for  the  high 
rate  of  taxation  where  trading  is  not  carried  on. 
The  lighting  of  a  number  of  the  London  boroughs, 
for  example,  is  still  in  the  hands  of  companies,  and 
the  economy  shown  in  the  cost  of  company  lighting 
compared  with  the  cost  in  municipal-lighted  dis- 
tricts is  very  striking.  Here  are  some  comparative 
figures,  adapted  from  a  table  prepared  by  the 
London  Municipal  Society : 

Bnmntrh  Street  Cost  of         Costp«r 

"°""*8'»  MUeage  Lighting  Mile 

Bethnal  Green  . .  (company)       40  $23,985       $600 

Shorediteh    (municipal)     43  72,000       1,674 

Deptford (company)       52  19,235         370 

Hammersmith   . .  (municipal)     55  41,870         761 

Greenwich    (company)       58  23,080  397 

Fulham (municipal)     56  54,290         970 

179 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

n/>»nn»i.  Street  Cost  of         Cost  per 

ijorougn  MUeage  Lighting  Jdile 

Paddington    (company)       59 1^       $52,360      $880 

Hampstead (municipal)     57  58,290       1,022 

Lewishara  (company)     108  39,045         360 

Hackney (municipal)  104  81,075         780 

Camberwell (company)     130>4         58,760         450 

Islington (municipal)  124  160,850      1,295 

Lambeth (company)     USj/z        67,865         455 

St.  Pancras   (municipal)     88>4       109,515       1,235 

Wandsworth    . . .  (company)     176  88,405         500 

Stepney (municipal)     92  106,155      1,155 

If  reference  be  made  to  the  previous  table  as 
to  the  percentage  of  taxation  in  the  company- 
lighted  districts  shown  above,  it  will  be  seen  that 
it  is  not  generally  lower  than  in  the  municipal- 
lighted  districts.  The  assumption  to  be  drawn 
from  this,  in  view  of  the  higher  cost  of  municipal 
lighting,  is  that  the  percentage  of  taxation  would 
be  higher  if  the  lighting  were  taken  away  from 
the  companies.  Where  economic  company-light- 
ing fails  to  affect  the  percentage  of  taxation,  as 
in  Camberwell  (which  pays  45  per  cent,  per  head 
on  the  assessment),  it  is  because  a  district  prej- 
udices the  prudence  shown  in  this  direction  by 
imprudence  in  other  ways.  Thus,  of  Camber- 
welPs  local  debt  of  £560,724  ($2,803,620),  no  less 

18Q 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

than  £339,002  ($1,695,010)  is  invested  in  public 
baths,  wash-houses,  libraries,  an  art  gallery,  and 
in  housing,  Greenwich  and  Bethnal  Green  (both 
company-lighted  districts),  with  their  41  per  cent, 
taxation  per  head,  are  heavily  burdened  by  their 
poor  law  administration,  which  accounts  for  two- 
thirds  of  the  local  debt  of  the  one,  and  more  than 
half  of  that  of  the  other.  Finally,  it  may  be 
pointed  out  that  the  heaviest  taxed  districts.  Pop- 
lar and  Bermondsey  (60  per  cent,  and  461/2  per 
cent,  per  head  respectively),  are  municipally 
lighted,  whilst  the  lightest  taxed  district,  Padding- 
ton  (321/^  per  cent,  per  head),  is  lighted  by  a  com- 
pany. 

To  examine  individually  the  trading  exploits 
of  the  worst  offenders  in  the  London  area  would 
only  be  repeating  the  same  story.  There  is,  how- 
ever, one  district  (Batter sea),  which  stands  out 
as  a  conspicuous  example  of  the  lengths  to  which 
a  municipality  will  go  in  extravagance,  when  once 
it  is  in  the  hands  of  the  socialistic-labor  element. 
In  this  respect  it  is  hardly  typical  as  yet  of  the 
other  London  boroughs;  but,  if  the  intentions  of 
the  Labor  Party  mean  anything,  and  Battersea 
does  not  afford  them  a  sufficient  warning,  that 
fate  appears  to  be  in  store  for  them.  In  sixteen 
years  (between  1888-9  and  1904-5)  the  local  debt 
in  Battersea  has  grown  from  $275,000  to  $3,500,- 

181 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

000;  its  rates  (or  taxes)  from  5s.  3d.  in  the  pound 
to  8s.  4d.  in  the  pound  (or  from  26i^  per  cent,  to 
41^  per  cent.,  charged  on  a  householder's  rent) ; 
and  the  assessment  values  of  the  properties  on 
which  the  rates  are  levied  has  increased  from 
$333,000  to  $1,150,000.  This  expansion  of  the  dis- 
trict's financial  burden  cannot  be  explained  away 
by  growth  of  population  (it  has  only  increased  by 
19  per  cent,  in  the  period  named,  while  the  money 
extracted  by  taxation  has  grown  142  per  cent.), 
nor  by  any  development  of  new  industries  and  the 
consequent  increased  wants  of  the  locality  which 
would  arise  therefrom,  for  the  present  tendency 
is  the  decline  of  London  as  an  industrial  center. 

The  redemption  of  the  sums  borrowed  is  made 
a  charge  on  the  future.  While  the  next  genera- 
tion of  taxpayers  will  have  to  bear  the  sins  of  the 
present  administration,  the  Battersea  taxpayer 
to-day  is  groaning  under  the  burden  of  meeting 
indebtedness  made  in  the  past.  Hence  sums  in 
respect  of  repayment  of,  or  interest  on,  loans  is 
a  permanent  charge  on  the  taxes.  Indeed,  one 
Battersea  taxpayer  states  that  of  the  district's 
whole  income  (about  $2,000,000),  more  than  a 
quarter  is  being  paid  away  on  account  of  loans, 
raised  either  by  the  Municipal  Council,  or  by  the 
other  spending  bodies  (the  Board  of  Guardians 
and  the  London  County  Council)  whose  rates  it 

182 


THE  WOELD'S  GREATEST  SPENDTHRIFT 

collects.  In  other  words,  the  money-lender  takes 
some  twenty-eight  cents  out  of  every  dollar  col- 
lected from'  the  taxpayer. 

As  an  example  of  the  tax-demand  note  pre- 
sented by  local  authorities  to  a  British  house- 
holder, let  us  examine  the  bill  tendered  to  a  Bat- 
tersea  taxpayer.  It  contains  demands  from  the 
Board  of  Guardians  for  the  administration  of  the 
poor  law,  demands  from  the  London  County  Coun- 
cil for  general  administrative  purposes  and  for 
education,  the  police  tax,  and  the  borough  coun- 
cil's own  taxes  for  local  administration.  The  fol- 
lowing table  shows  the  proportion  these  spending 
bodies  take  of  the  8s.  4i/2d.  (or  41 1^  per  cent,  as- 
sessed on  his  rent)  which  is  extracted  from  the 
Battersea  taxpayer: 

Board  of  Guardians  for    s.  d. 

the  poor, 1  Hi  in  the  £  or  nearly  10%  on  the  rent 

London  County  Council  16"  "  or  7i%  " 
London  County  Council 

for  education 1    7  J  "  "  "  8%  " 

Police 2i   "  "  "  1%  " 

Borough  CouncU 3    U  "  "  "  15j5^  " 

8.    4i    "        "  «'    ili%  " 

If,  therefore,  a  Battersea  householder's  rent  is 
$100  a  year,  he  pays  $10  toward  keeping  the  poor 
of  his  district,  $7.50  to  the  London  County  Coun- 
cil, $8  for  educational  purposes,  $2  to  the  police, 
and  $15  for  local  purposes,  or  altogether  41 1/^  per 

183 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

cent,  in  general  taxes,  in  addition  to  his  rent. 
This,  it  may  be  pointed  out,  is  distinct  from  the  in- 
come tax  levied  by  the  State  for  national  pur- 
poses, which  takes  another  shilling  out  of  every 
sovereign  ($5)  of  his  earnings,  over  $800  a  year. 

These  rates  would  appear  to  be  much  higher  if 
the  assessment  value  of  the  property,  on  which 
they  are  raised,  was  not  tinkered  with  and  in- 
creased, by  which  method  a  great  deal  of  money 
is  obtained  without  raising  the  tax  rate  per  pound. 
In  fact,  it  is  estimated  that  but  for  the  increased 
assessment  device,  Battersea  taxes  would  be  quite 
13s.  in  the  pound,  or  sixty-five  per  cent,  on  the 
rental  value  of  property.  As  a  further  illustra- 
tion, taking  London  as  a  whole,  the  assessment 
value  of  the  Metropolis  has  risen  from  over  $170,- 
000,000  in  1895  to  over  $245,000,000  in  1904,  or  an 
increase  in  nine  years  of  about  twenty  per  cent, 
in  the  rental  valuation  of  property  on  which  lo- 
cal taxes  are  raised.  Put  differently,  a  two-cent 
rate  which  in  1895  realized  eighty  cents  on  a  house 
of  a  rental  of  $200,  in  1904  brought  in  $1.  Bat- 
tersea's  own  local  rates  admit  of  a  similar  analy- 
sis, showing  that  it  is  spending  to  a  much  greater 
extent  than  its  actual  rate  of  taxation  indicates. 

Poplar  is  another  district  where  the  incidence 
of  taxation  is  heavy— the  table  shows  it  to  be  no 
less  than  60  per  cent,  on  the  rental  value  of  prop- 

184 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

erty,  or  12s.  in  the  pound,  equivalent  to  sixty  cents 
per  dollar.  In  this  district,  where  one  person  out 
of  every  fourteen  is  a  pauper  living  on  the  taxes, 
the  burden  is  heaviest  on  the  trading  community, 
the  case  for  whom  has  been  well  presented  by  Mr. 
J.  G.  Broodbank,  of  the  London  and  India  Docks 
Company,  in  a  letter  to  the ' '  London  Tribune. "  *  *  We 
make  about  £100,000  a  year  profit  at  Poplar,"  he 
says,  **and  out  of  that  we  have  to  pay  £30,000  in 
taxes.  We  get  nothing  for  the  money.  We  have 
to  make  our  own  roads,  do  our  own  sewering,  and 
provide  our  own  police.  We  do  not  use  the  baths 
nor  the  board  schools.  A  third  of  our  local  profits 
go  in  taxes,  and  we  have  not  a  vote  in  return  for 
it.  Why,  even  the  Sultans  of  the  East  do  not  im- 
pose such  taxes!"  The  proportion  of  taxes 
to  the  net  profit  of  this  company  in  Poplar  works 
out  at  about  twenty-one  per  cent.  The  profits  of 
other  companies  established  in  the  same  district 
are  lightened  by  taxation  as  follows :  South-East- 
ern  Railway,  twenty  per  cent,  of  the  profit ;  Great 
Eastern  Railway,  seventeen  per  cent.;  South- 
western Railway,  fifteen  per  cent.;  London  & 
North- Western  Railway,  eleven  per  cent. ;  and  the 
Great  Northern  Railway,  ten  per  cent,  of  the 
profit. 

The  scandal  of  the  taxes  in  districts  like  Bat- 
tersea  and  Poplar,  not  to  mention  West  Ham, 

185 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

where  the  party  which  benefits  by  the  rates  is 
stronger  than  the  party  which  pays  them,  has  had 
the  effect  of  driving  manufacturers  and  traders 
from  them,  and  the  prosperity  of  industries  upon 
which  the  working  population  depends  is  in  danger 
of  becoming  undermined.  In  fact,  as  the 
"Times"  has  pointed  out,  that  position  has  al- 
ready been  reached.  ''What  with  the  increase  in 
the  rates,"  it  remarks,  ''and  what,  in  effect,  is  the 
same— the  increased  value  at  which  property  is 
assessed— London  is  not,  for  their  purpose,  what 
it  was.  The  manufacturers,  shipping  and  dock 
companies  begin  to  find  that  the  more  they  are 
able  to  carry  their  works  and  operations  outside 
the  metropolitan  area,  the  better  for  them.  Lon- 
don firms  nowadays,  when  they  contemplate  re- 
moving their  business,  or  extending  their  opera- 
tion into  another  neighborhood,  first  inquire  what 
the  rates  are.  To  such  an  extent  does  the  inci- 
dence of  rates  enter  into  the  calculations  of  those 
who  meditate  the  extension  of  industrial  works, 
that  a  fundamental  rule  of  business  has  now  been 
evolved  for  all  who  are  acquiring  land  and  build- 
ings: Keep  outside  the  jurisdiction  of  an  extrav- 
agant municipality." 

Major  Leonard  Darwin^  calls  attention  to  the 
serious  danger  indicated  here:  "If,  in  any  town, 

*  "Municipal  Trade,"  page  442. 

186 


THE  WORLD'S  GREATEST  SPENDTHRIFT 

Municipal  Trading  has  been  largely  undertaken, 
and  if  for  any  cause  the  population  begins  to  de- 
cline before  the  debts  thus  incurred  have  been  re- 
deemed to  any  material  extent,  the  result  must  be 
a  reduction  of  municipal  profits  and  increase  in 
local  taxation.  And  the  serious  aspect  of  the  case 
is  that,  in  these  circumstances,  taxation  is  likely 
to  go  on  increasing  at  a  geometrical  ratio ;  for  the 
desire  of  the  inhabitants  to  leave  the  neighbor- 
hood will  increase  with  every  increase  of  taxa- 
tion; and  the  burden  of  taxation  will  increase 
with  every  new  departure  of  inhabitants.  There 
is  in  these  circumstances  every  condition  neces- 
sary to  produce  commercial  disaster  and  munici- 
pal bankruptcy.'* 

As  far  as  the  London  borough  councils  are  con- 
cerned, this  fate,  toward  which  many  of  them 
were  undoubtedly  leading  their  districts  by  the  in- 
crement of  liabilities  they  created  each  year,  has 
been  peremptorily  checked.  The  elections  in  No- 
vember, 1906,  resulted  in  a  clean  sweep  of  the  Pro- 
gressives (the  ownership  party),  and  a  remarkable 
accession  of  strength  to  the  Moderates.  There  are 
some  boroughs,  once  Progressive,  in  which  hardly 
any  members  of  that  party  have  survived,  and  in 
which  there  is  now  only  one  party,  the  Moderates. 
All  along  the  line  the  anti-ownership  party  were 
at  the  top  and  the  Progressives  at  the  bottom, 

187 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

though,  indeed,  the  labor  candidates  were  some- 
times lowest  of  all.  In  1903  there  were  fifteen  bor- 
oughs in  London  in  which  the  Progressives  were  in 
a  majority;  there  are  now  two.  The  thirty  bor- 
oughs that  the  Moderates  have  thus  won  are  in  all 
parts  of  London— in  the  north,  as  Islington  and  St. 
Pancras ;  in  the  south,  as  Camberwell ;  in  the  east, 
as  Poplar,  Stepney  and  Woolwich,  and  in  the  west, 
as  Fulham.  The  general  totals  show  959  municipal 
reformers  (or  anti-ownership  party), 272  Progress- 
ives (the  defeated  socialists),  34  labor  and  97  in- 
dependent members.  In  the  provincial  towns  there 
were  also  victories  for  the  supporters  of  private 
enterprise,  though  the  ownership  defeat  was  less 
crushing  than  in  London.  But  in  Glasgow  in  thir- 
teen contests  nine  labor  candidates  were  hopelessly 
beaten,  one  labor  magistrate  lost  his  seat  and  only 
three  labor  men  out  of  thirty-four  candidates  who 
went  to  the  polls  were  returned. 

It  is  unfortunate,  as  the  "London  Times"  has 
pointed  out,  that  many  of  the  most  objectionable  of 
the  municipal  undertakings,  which  have  now  been 
practically  condemned  by  the  public,  are  to  some 
extent  of  the  nature  of  commitments,  and  that 
their  immediate  abandonment  may  not  be  alto- 
gether practicable.  But  at  least  the  continuance  of 
the  Progressive  policy  has  been  interrupted  by  the 
more  prudent  element  which  has  now  entered  the 

188 


THE  WOELD'S  GREATEST  SPENDTHRIFT 

London  borough  councils.  The  change  promises 
better  local  government  for  London,  especially  if 
the  strength  of  the  reforming  party  on  the  bor- 
ough councils,  as  expressing  public  opinion,  ex- 
ercises a  restraining  influence  on  the  London 
County  Council. 


189 


CHAPTER  X 

SOLVENCY  OF  CITIES 

Soundness  of  Municipal  credit  questioned  .  .  .  Credit  defined  .  .  . 
Inflated  assessments  as  creating  a  fictitious  security  .  .  .  Ap- 
pearance of  wealth  which  does  not  really  exist  .  .  .  Faith  of  in- 
vestors on  Municipal  stocks  explained  .  .  .  Belief  in  the  ability 
of  the  taxpayer  to  meet  the  liability  .  .  .  Money  not  raised 
on  security  of  undertaking  for  which  it  is  required,  but  on  the 
taxes  .  .  .  Failure  of  such  undertakings  to  stand  on  their  own 
foundations  .  .  .  Depreciation  of  London  County  Council  stocks 
and  the  cause  thereof  .  .  .  Resort  of  municipalities  to  the  issue 
and  renewal  of  bills  at  increased  discount  to  ensure  response 
.  .  .  Business  community  deprived  of  money  through  its  absorp- 
tion by  municipalities  for  their  trading  schemes  .  .  .  Taking 
money  on  deposit  by  principal  British  cities  .  .  .  Small  deposits 
invited  .  .  .  Failure  of  the  system  in  some  towns  .  .  .  An  en- 
croachment on  the  savings  of  the  people  .  .  .  Dangerous  posi- 
tion of  local  authorities  in  case  of  sudden  calls  for  repayment. 

THE  inflation  of  assessments  for  taxation  pur- 
poses, shown  in  the  last  chapter,  only  means 
that  in  time  British  municipalities  will  be  rais- 
ing money  on  a  wholly  fictitious  security  in  the  ex- 
ercise of  their  spending  powers.  The  question 
arises  as  to  how  far  their  credit  can  stand  the 
strain.  Much  stress,  the  ''London  Argus"  has 
pointed  out,  is  laid  by  the  supporters  of  Municipal 
Trading  on  the  soundness  of  municipal  credit.  Let 
us  go  to  the  root  of  the  matter  and  ask,  with  that 
journal,  what  is  credit  generally?  To  quote  Wil- 
liam Cobbett,  credit  is  a  thing  wholly  dependent 

190 


SOLVENCY  OF  CITIES 

on  opinion.  **The  word  itself,  indeed,"  says  this 
old  economist,  ''has  the  same  meaning  as  the  word 
'belief.'  As  long  as  a  man  believes  in  the  riches 
of  an  individual,  or  any  company,  so  long  he  or 
they  possess  all  the  advantages  of  riches.  But 
when  once  suspicion  is  excited,  the  credit  is 
shaken.  So  long  as  the  belief  is  implicit,  the  per- 
son toward  whom  it  exists  goes  on  not  only  with 
all  the  appearances,  but  with  all  the  advantages, 
of  wealth,  though  at  the  same  time  he  be  insolv- 
ent. But  if  his  wealth  is  not  solid,  if  he  merely 
have  the  appearance  of  wealth,  if  he  be  insolvent, 
he  is  liable  at  any  moment  to  have  his  insolvency 
exposed. "  It  is  urged  in  the  case  of  London  that 
its  debt  is  fully  secured  on  its  taxable  value.  That 
debt  is  already  well  over  double  the  taxable  value, 
which  has  grown  enormously  in  recent  years. 
The  ' '  London  Argus, ' '  in  directing  public  attention 
to  the  limit  of  a  municipality's  credit,  recalls  that 
assessment  committees  in  fixing  rateable  value 
have  not  always  held  the  scales  of  justice  evenly. 
They  have  often  been  guided  in  their  duty  not 
so  much  by  the  real  value  of  the  property  assessed 
as  by  the  needs  of  the  local  authorities  to  obtain 
money.  House  property  in  many  parts  of  Lon- 
don is  becoming  less  and  less  profitable.  The 
percentage  of  empty  houses  grows  more  and 
more.    Nevertheless,  the  rateable  value  is  raised. 

191 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

There  is  thus  created  that  appearance  of  wealth 
which  does  not  really  exist.  If  the  exodus  of 
Londoners  continues,  the  example  of  West  Ham 
will  be  repeated  on  a  large  scale,  and  with  far 
graver  results.  The  commercial  decay,  the  driv- 
ing away  of  the  middle  classes  from  West  Ham, 
by  reason  of  excessive  rates,  has  been  serious 
enough.  The  effect  of  such  a  state  of  things  on  the 
welfare  of  London  is  almost  unimaginable.  The 
wealth  of  London  and ' '  the  ability  of  it  to  pay ' '  are 
phrases  glibly  used  by  Progressive  apologists  for 
rising  rates.  In  using  them  it  is  plain  they  do 
not  think  who  or  what  are  the  payers.  They  are 
poor.  Not  less  than  44  per  cent,  of  the  assessed 
houses  and' tenements  in  London  do  not  exceed 
£20  rateable  value.  That  44  per  cent,  represents 
the  dwellings  of  the  poor  and  very  poor,  who  have 
a  hard  struggle  to  live.  Though  they  may  not 
pay  rates  direct,  they  pay  them  indirectly.  The 
landlord  pays  the  rates  and  adds  them  to  the  rent. 
In  his  work  on  ' '  The  Life  and  Labor  of  the  People 
of  London,"  Charles  Booth  points  out  that  the 
population  of  London  consists  of : 

Percent. 

The  Poor 30 

Working  classes  in  regular  employment  ....     51 
Lower  middle,  middle  and  upper  classes 17 

From  this  division  it  will  be  seen  that  80  per 
192 


SOLVENCY  OF  CITIES 

cent,  of  the  population  of  London  belongs  to  the 
class  which  feels  acutely  excessive  taxation.  I 
am  indebted  to  the  journal  named  for  this  convinc- 
ing view  of  the  insecurity  of  municipal  credit  in 
London,  which  equally  applies  to  other  cities. 

But  the  glamor  of  figures,  the  solid  persuasive 
security  of  the  taxes  indicated  by  an  inflated 
valuation  of  assessments  stated  in  terms  of 
millions  of  pounds  sterling,  wins  over  the  inves- 
tor who  goes  into  the  market.  British  cities,  he 
reflects,  do  not  default,  however  bad  their  admin- 
istration ;  so  that  his  money  is  all  right.  But  for 
the  trust  of  the  investor  in  the  municipalities,  his 
money  .would  go  in  sound  commercial  enterprises, 
built  on  foundations  of  substantial  actual  assets. 
For  instance,  the  London  County  Council,  after 
giving  the  market  a  rest  to  enable  investors  to  re- 
cover from  the  drain  on  their  resources  occasioned 
by  previous  municipal  loans,  has  only  to  make  an 
issue  for  a  large  amount,  which  has  every  chance 
of  being  subscribed— and  over-subscribed— with- 
in a  very  short  time.  But  like  a  speculative 
syndicate  conscious  of  the  defects  of  the 
proposition  it  submits  to  the  public,  it  may  thus 
succeed  by  the  bait  of  an  enticing  discount  which, 
indeed,  municipalities  are  now  generally  compelled 
to  offer  to  induce  a  sufficient  response.  The  Lon- 
don County  Council  has  an  annual  expenditure 

"  193 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

within  $5,000,000  of  the  annual  expenditure  of 
Belgium,  exceeding  that  of  Saxony,  the  Argen- 
tine Republic,  Norway  and  Sweden  combined,  the 
Netherlands  and  Portugal,  double  that  of  Eou- 
mania,  and  more  than  four  times  that  of  Den- 
mark. The  Council  may  sink  most  of  the  money 
it  raises  in  street  railways  whose  accounts  can 
only  be  made  to  show  a  profit  by  not  debiting  the 
large  expenditures  made  in  respect  of  them,  or 
in  more  boats  whose  running  shows  an  enormous 
loss.  The  investing  public,  however,  are  not  sen- 
sible of  the  doubtful  uses  to  which  London's  chief 
municipality  applies  the  money.  They  are  only 
concerned  with  the  security  offered— the  assess- 
ment value  of  the  Metropolis,  i.e.,  the  ability  of 
the  taxpayer  to  pay,  whatever  befalls.  But  con- 
ceive of  the  reception  which  a  municipality's  is- 
sue of  a  loan  for  speculative  trading  purposes 
would  receive  in  the  money  market  if,  as  security 
for  the  loan,  it  relied  solely  on  the  assets  of  the 
particular  undertaking  in  respect  of  which  the 
money  was  wanted?  The  losses  resulting  from 
the  municipal  management  of  electricity  works 
all  over  the  country  are  a  by-word.  Hardly  one, 
indeed,  if  proper  allowance  were  made  for  de- 
preciation and  sinking  fund,  would  show  a  profit. 
It  is  safe  to  say  that  such  municipal  undertakings 
would  receive  scant  recognition  as  payable  prop- 

194 


SOLVENCY  OF  CITIES 

ositions  in  the  market  on  their  own  merits.  What 
chance,  for  that  matter,  has  a  private  electrical 
undertaking  of  raising  money,  with  a  bad  balance 
sheet,  not  for  one  year,  but  from  the  start!  Mu- 
nicipalities are  well  aware  that,  but  for  the  sub- 
stantial assets  of  the  taxes,  they  could  not  raise 
money  for  their  trading  speculations  at  all.  Their 
undertakings,  therefore,  cannot  stand  on  their  own 
foundations;  their  own  assets  are  negligible  for 
the  purpose  of  raising  money  on  them ;  and  with- 
out the  aid  of  the  taxes  they  would  fall  to  pieces. 
It  hardly  needs  saying  that  this  dependence  on  the 
taxpayer  as  an  asset  for  loan  purposes,  and  not 
on  the  undertaking  itself  (which,  as  shown,  would 
cut  a  sorry  figure  as  such)  constitutes  the  cardi- 
nal weakness  of  the  principle  of  conducting  com- 
mercial businesses  out  of  public  money. 

This  question  of  raising  municipal  stock  was  re- 
cently raised  in  the  ''London  Tribune,"  apropos 
of  a  strong  attack  made  by  Mr.  G.  R.  Sims,  the 
dramatist,  upon  the  extravagance  of  local  author- 
ities. By  way  of  retort,  Mr.  George  Bernard 
Shaw  wrote  asking  Mr.  Sims  to  obtain  for  him 
some  municipal  stock  at  panic  prices,  as  he  was 
seeking  cheap  gilt-edged  investments.  ''A  brief 
search  will  show,"  states  this  reckless  speculator, 
''that  the  very  people  who  have  been  stuffing  him 
(Mr.  Sims)  with  all  this  nonsense  about  munici- 

195 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

pal  bankruptcy  will  lend  money  to  a  municipal 
corporation  on  terms  that  they  would  not  enter- 
tain for  a  moment  from  a  private  company.  The 
London  County  Council  is  at  present  in  financial 
despair  because  the  actual  scarcity  of  money, 
caused  by  the  burning  up  of  hundreds  of  millions 
of  pounds  in  South  Africa,  Manchuria,  Russia  and 
other  seats  of  war,  prevents  it  from  raising  capi- 
tal at  three  per  cent.  The  County  Council  has  to 
pay  extra  for  scarcity,  as  every  one  else  has,  but 
will  anyone  be  so  hardy  as  to  pretend  that  it  has 
now,  or  ever  has  had,  to  pay  a  farthing  for  risk? 
And  yet  if  a  private  company  had  been  finan- 
cially written  down  by  the  Moderate  press  and  the 
anti-Progressive  alliances  and  leagues  and  Rate- 
payers Associations  for  twenty  years,  as  the  coun- 
cil has,  it  would  not  be  able  to  raise  a  shilling 
at  50  per  cent." 

A  correspondent  was  quick  to  remind  Mr.  Shaw 
that  he  would  probably  have  a  chance  one  day  of 
obtaining  London  County  Council  securities  at 
panic  prices.  As  he  points  out,  they  dropped  a 
good  many  points  long  after  the  wars  he  names, 
and  it  is  because  investors  are  beginning  to  doubt 
the  security.  "A  three  per  cent.,  gilt-edged  in- 
vestment, secured  on  the  rates  of  the  premier 
city  of  the  world,  being  IOI/2  points  below  par, 
shows  what  investors  think  of  present  municipal 

196 


SOLVENCY  OF  CITIES 

undertakings."  Another  correspondent  com- 
mented that  municipal  stocks  are  procurable  at 
other  than  famine  prices,  not  because  municipali- 
ties make  profits,  but  because  they  do  not  depend 
on  profits  to  pay  interest  or  repay  capital,  but 
upon  the  rates.  It  is  the  power  of  the  ''screw" 
which  makes  these  investments  gilt-edged.  But 
neither  has  hit  upon  the  real  cause  for  the  depreci- 
ation of  municipal  stocks.  There  are  far  too 
many  of  them  issued.  Municipalities  have  flooded 
the  market  with  their  loans,  whereby  the  investing 
public  has  been  drained  of  its  surplus  capital. 
This  outcome,  however,  hits  both  ways.  Whilst 
stagnating  private  enterprise  by  withdrawing 
from  it  capital  which,  but  for  its  absorption  by 
the  municipalities,  would  be  attracted  to  it,  a 
dearth  of  money  has  also  the  effect  of  prejudicing 
the  success  of  further  new  issues  of  the  munici- 
palities. When  there  are  few  or  no  issues  of 
new  municipal  stock,  therefore,  little  money  is 
available. 

In  one  way,  it  would  be  advantageous  to  the 
taxpayers  if  this  state  of  things  continued.  Not 
to  be  beaten,  however,  the  municipalities  in  their 
desperate  straits  fall  back  on  issuing  and  renewing 
bills.  In  this  direction,  as  in  their  too  great  de- 
pendence on  the  resources  of  the  money  market 
for  raising  bonds,  they  have  over-reached  them- 

197 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

selves  by  issuing  too  many  bills,  with  the  result 
that  on  the  expiry  of  a  bill  they  increase  the  rate 
of  discount  in  order  to  ensure  its  renewal.  Only 
recently  Birmingham  municipality  had  to  pay  an 
average  percentage  of  nearly  £3.  lis.  5d.  for  the 
renewal  of  the  current  issue  of  £300,000  bills  for 
twelve  months.  A  year  previously  the  same  bills 
were  allotted  at  the  rate  of  £2.  14s.  4i/2d.  per  cent. 
A  distinguished  English  lawyer,  who  is  well  ac- 
quainted with  the  strange  ways  of  municipal  fi- 
nance, thus  writes  me  apropos  of  this  very  high 
rate  of  discount  of  first-class  paper :  *  *  What  pos- 
sible chance  has  a  merchant  of  being  adventurous 
if  he  is  to  come  into  competition  with  municipal- 
ities who  are  denuding  the  local  banks  all  over  the 
country  of  their  floating  balances  by  offering  ac- 
ceptances at  this  price  ?  When  evidence  was  being 
given  on  the  Local  Loans  Committee  in  1902,  some 
of  the  town  clerks  defended  the  system  of  raising 
money  by  bills,  saying  that  the  bills  were  of  such 
large  amounts  that  they  did  not  come  into  com- 
petition with  mercantile  bills.  This  is  an  entire 
fallacy.  I  am  assured  by  money  brokers  that  the 
larger  the  amount  the  better  they  like  the  bill,  as  it 
is  taken  up  as  a  floater  all  the  more  readily  the 
bigger  it  is.  Currency  questions  are  so  difficult 
that  one  hesitates  to  dogmatize  upon  them;  but  I 
have  the  strongest  impression  myself  that  these 

198 


SOLVENCY  OF  CITIES 

municipal  bills  are  subversive  of  those  laws  which 
are  so  inexorable  in  their  vindication  of  sound 
economic  principles.  The  mercantile  bill  is  an  in- 
strument of  barter  which  is  accepted  by  com- 
mercial people  in  lieu  of  cash,  and  so  economizes 
the  currency  of  the  country.  These  municipal  bills 
are  nothing  of  the  kind.  There  is  no  transference 
of  value  which,  as  in  the  case  of  the  mercantile 
bill,  is  certain  to  put  the  drawer  in  funds  by  the 
end  of  the  currency  of  the  bill;  on  the  contrary, 
when  the  bill  runs  out,  the  treasury  of  the  muni- 
cipalities is  not  refunded,  and  they  have  no  re- 
course except  to  renew  the  bill,  and  thus  to  per- 
petuate their  depletion  of  available  currency.  In 
fact,  the  bill  is  not  used  for  floating  over  a  tem- 
porary occasion,  but  is  renewed  to  put  off  the 
meeting  of  a  perpetual  liability.  If  this  is  sound 
reasoning,  the  issue  of  these  bills  has  exactly  the 
same  injurious  effect  upon  the  community  as  a 
depreciation  of  the  coinage  would  have.  It  may 
be  said  that  these  bills  do  not  pretend  to  follow  the 
analogy  of  mercantile  bills,  but  are  modeled  upon 
Government  Treasury  bills.  My  answer  to  this  is 
that  the  municipalities  do  not  budget  their  ex- 
penditure. The  Treasury  bill  is  issued  to  bridge 
over  the  gap  between  expenditure  and  receipt  in 
the  annual  revenue  of  the  Government ;  the  muni- 
cipal bills  are  not  issued  on  revenue  but  on  capital 

199 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

account,  and  are  just  as  improper  a  method  of  fi- 
nance for  them  as  they  would  be  for  a  railway  com- 
pany to  employ  them  for  the  financing,  for  instance, 
of  their  capital  outlay  upon  a  permanent  work. ' ' 

Another  device  of  the  municipalities  to  raise 
money  is  to  tout  among  the  humbler  class  of  their 
thrifty  citizens  to  induce  them  to  deposit  their 
savings  with  them.  In  this  direction  they  attempt 
to  tap  an  investing  public  which  knows  nothing 
about  the  money  markets,  and  whose  knowledge  of 
finance  is  confined  to  the  interest  they  obtain  from 
their  bank.  In  the  money  market  they  rob  private 
enterprise  of  the  cream  of  would-be  investors ;  in 
their  own  district  they  actively  compete  with  the 
ordinary  banks  for  deposits  by  offering  a  higher 
interest.  Glasgow,  Edinburgh,  Manchester,  and 
Liverpool  advertise  for  deposits  from  time  to  time, 
as  well  as  county  councils  and  even  parish  councils. 

A  correspondent  in  the  ''London  Telegraph" 
(Oct.  27,  1906)  makes  the  following  interesting 
remarks  about  the  system  of  finance  practised  by 
Edinburgh  municipality,  which  has  a  resemblance 
at  least  to  municipal  banking:  ''They  advertise 
for  loans  and  take  money  on  deposit  from  whoever 
offers  it,  for  long  or  short  periods— probably,  un- 
less in  very  exceptional  circumstances,  for  not  less 
than  a  month.  They  give  in  the  way  of  interest  a 
half  per  cent,  more  than  the  bank  rate,  whatever 

200 


SOLVENCY  OF  CITIES 

that  may  be.  The  exact  percentage  of  interest  is 
not  stated  in  the  advertisement  asking  for  money, 
and  it  varies  according  to  the  bank  rate.  This  half 
per  cent,  more  than  the  bank  induces  lawyers  espe- 
cially to  invest  temporarily  their  clients'  money 
with  the  municipality  rather  than  with  the  banks. 
At  any  stated  date  the  chamberlain  of  the  city,  who 
is  the  official  charged  with  its  monetary  concerns, 
will  have  average  deposits  on  hand  of  about  three- 
quarters  of  a  million  sterling,  but  the  annual  turn- 
over is,  of  course,  much  greater  than  that  sum. 
There  is  not  at  present  the  same  flow  of  money 
from  small  depositors  as  there  was  a  year  or  two 
ago.  This  is  in  part  accounted  for  by  the  fact 
that  many  safe  investments,  such  as  Consols  and 
railway  stocks,  have  been  low  in  price,  and  the 
money  has  gone  into  them.  Money,  that  formerly 
flowed  freely  into  the  coffers  of  the  municipality, 
has  had  to  be  sought  on  loan  from  quarters  where 
it  was  known  money  could  be  had.  The  system 
works  exceedingly  well  from  the  municipal  point 
of  view,  but  it  has  all  along  been  a  thorn  in  the  side 
of  the  banks,  who  have  once  or  twice  tried  to  re- 
taliate on  the  municipalities,  without,  it  may  be 
observed,  any  very  permanent  results.  It  has  been 
roughly  estimated  that  in  1905  something  like  six 
or  seven  millions  less  of  business  was  done  by  the 
Scotch  banks  than  formerly  on  account  of  the 

201 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

municipalities,  school  boards,  parish  couneils, 
county  councils,  and  other  public  boards  taking 
loans  directly  from  the  public,  instead  of  dealing 
as  formerly  with  the  banks. ' ' 

The  same  journal  mentions  that  something  like 
municipal  banking  has  been  started  at  King 's  Lynn 
—a  municipality  which  is  credited  with  being  the 
pioneer  in  raising  loans  for  municipal  purposes. 
That  borough  recently  announced  that  it  would  re- 
ceive amounts  of  £50  and  upwards  at  31/2  pei*  cent, 
interest,  repayable  at  six  months*  notice,  or  at  a 
shorter  term  by  arrangement,  to  meet  an  outlay  on 
its  electric  light  undertaking.  In  ten  days  all  the 
money  required  was  received.  The  county  bor- 
ough of  Devonport  is  another  instance  of  this  form 
of  municipal  enterprise.  A  circular  published  in 
June,  1904,  announced  that  the  municipality  was 
prepared  to  receive  sums  of  £10  and  upwards  on 
deposit,  repayable  at  one  calendar  months'  notice 
at  any  time,  bearing  interest  at  3  per  cent,  per 
annum.  ''These  sums,"  the  circular  stated,  *'are 
free  of  all  charge  or  expense  to  the  depositor,  and 
can  be  increased  from  time  to  time  by  the  addition 
of  further  sums  of  not  less  than  £50.  It  added  that 
'  *  any  number  of  deposits  may  be  made  by  one  per- 
son, and  no  limit  in  amount  is  placed  upon  any  one 
account, ' '  and,  as  apparently  indicating  that  these 
deposits  are  not  limited  to  the  people  of  Devon- 

202 


SOLVENCY  OF  CITIES 

port,  it  intimated  that  **  investors  may  send  their 
deposits  bv  cheques,  postal  orders,  or  other 
means. '  * 

The  expedient,  however,  has  hardly  proved  suc- 
cessful in  every  case.  One  cautious  borough  (Bury, 
Lanes.),  before  raising  money  by  this  means, 
sought  the  experience  of  other  municipalities. 
Nineteen  boroughs,  it  seems,  invited  loans  from 
£10  to  £90,  but  met  with  a  very  poor  response.  In 
some  cases  they  failed  altogether.  Of  the  bor- 
oughs which  raised  a  considerable  amount,  the 
most  noticeable  case  was  Bolton,  which  succeeded 
in  obtaining  £30,000  in  small  loans,  varying  from 
3  to  314  per  cent,  interest.  The  Birmingham  mu- 
nicipality, a  few  years  ago,  raised  £159,190  in  vari- 
ous sums,  accepting  as  small  an  amount  as  £20; 
but  it  found  the  transaction  costly,  and  abandoned 
the  scheme.  The  borough  treasurer  of  Bury  re- 
ported against  the  receiving  of  small  deposits. 

The  whole  practice  is,  of  course,  an  encroacn- 
ment  on  the  savings  of  the  people,  which,  as  has 
been  pointed  out  by  the  "Statist,"  are,  even  in 
the  richest  countries,  limited  in  extent.  Those 
savings  have  to  keep  up  all  existing  businesses, 
and  to  supply  the  means  of  extending  those  busi- 
nesses and  founding  new  industries.  To  the  ex- 
tent to  which  municipalities  make  demands  upon 
the  savings  of  the  country,  they  lessen  the  fund 

203 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

that  is  available  for  business.  If  anything  were 
to  happen  which  would  lead  depositors  to  call  in 
their  money,  the  local  authorities  might  find  them- 
selves in  a  very  serious  position.  It  is  said,  for 
example,  that  the  floating  debt  of  the  Glasgow 
Corporation  amounts  to  three  millions  sterling. 
If  political  anxieties  or  other  causes  were  to  lead 
depositors  to  call  in  their  loans,  how,  asks  the 
' '  Statist, ' '  would  municipalities  provide  the  funds 
to  make  repayment?  It  might  be  impossible  to 
borrow  on  the  open  market,  and  it  would  be 
a  serious  thing  to  expect  bankers  to  supply 
them  with  the  means.  The  municipalities  take 
money  at  a  comparatively  high  rate  of  interest  for 
three,  five  or  seven  years,  and  they  also  issue  notes 
for  six  months  or  twelve  months;  whilst  several 
of  them  have  been  likewise  borrowing  from  sav- 
ings-banks. In  all  these  ways  they  are  laying 
themselves  open  to  a  run  which  might  place  them 
in  an  unpleasant  predicament. 

With  the  market  losing  faith  in  them,  forcing 
them  to  angle  after  the  savings  of  their  own  peo- 
ple, which  are  promptly  sunk  in  unsound  under- 
takings that  compete  with  local  concerns  whose 
surplus  earnings  provide  the  capital,  how  are 
municipalities  going  to  justify  themselves?  What 
will  be  the  fate  of  communities  whose  whole  ex- 
istence will  then  depend  on  their  municipal  coun- 

204 


SOLVENCY  OF  CITIES 

cils,  as  they  spread  out  their  trading  ramifications 
like  a  net,  holding  in  financial  serfdom  rich  and 
poor  alike?  **What,"  asks  a  writer  in  the  ''Trib- 
une," ''is  to  become  of  private  property  itself? 
What  is  going  to  take  the  place  of  the  public 
healthfulness  derived  from  competition,  when  only 
an  omnibus- jack-of -all-trades-municipality  rules 
prices  and  markets  ?  The  picture  of  everything  for 
everybody  is  a  glowing  one,  but  it  suffers  from  an 
incurable  disease;  it  won't  work  in  practice.  No 
elector,  with  ever  so  good  an  intention,  can  know 
his  municipal  rulers  intimately  enough  to  deter- 
mine that  they  are  capable  of  controlling  a  variety 
of  industries  of  which  they  have  no  expert  know- 
ledge. Who,  then,  is  to  save  us  from  the  ama- 
teur, the  muddler,  the  self-seeker,  the  office- 
seeker,  the  office-creator,  from  irresponsible  ex- 
travagance, and  from  corruption  in  a  hundred 
forms  ?  May  heaven  spare  us  from  an  officialdom 
which,  not  content  with  watering  our  roads,  must 
needs  aspire  to  wash  our  clothes  and  comb  our 
hair. ' ' 

But  the  really  disastrous  stage  in  English  mu- 
nicipal methods  is  yet  to  come.  At  present  the 
whole  ownership  policy,  as  now  recklessly  pur- 
sued, has  become  a  burden  with  which  most  peo- 
ple have  grown  irritated  and  impatient,  and  the 
position  to-day  is  full  of  warnings  to  other  coun- 

205 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

tries  whose  inhabitants  take  the  trouble  to  inquire 
closely  into  the  question;  but  the  actual  crisis  to- 
ward which  all  this  insane  public  borrowing  is 
tending  may  be  deferred  for  some  years  yet,  so 
great  is  the  reserve  strength  of  Britain's  finance 
and  trade. 


206 


CHAPTER  XI 

DELUSIVE   DEMONSTBATIONS   OF   PEOFITS 

A  common  device  to  create  Municipal  "profits"  described  .  .  . 
Possession  of  monopolies  favorable  to  real  profits  being  ob- 
tained by  municipalities  .  .  .  Varied  views  of  the  "profit" 
theory  .  .  .  Confusion  of  terms  .  .  .  Street  improvements  .  .  . 
Practice  of  company  and  municipalities  contrasted  .  .  .  The  Lon- 
don County  Council's  deceiving  tactics  .  .  .  The  large  share 
private  companies  have  had  in  relieving  taxation  by  substantial 
annual  payments  to  Council  .  .  .  Council  silent  about  their  Teal 
source  .  .  .  Small  profits  of  the  Council's  system  and  only  pos- 
sible by  placing  inadequate  sum  to  depreciation  account  .  .  . 
Value  of  Northern  lines,  now  taken  over  by  the  Council,  ex- 
pected to  diminish  through  cessation  of  successful  private  opera- 
tion. .  .  .  Success  of  Glasgow  tramways  shown  not  superior  to 
success  obtained  by  private  operation  .  .  .  The  "profits"  of 
Municipal  electricity  works  and  those  of  companies  compared  .  .  . 
Mr.  Holt  Schooling's  examination  of  Municipal  "profits"  .  .  . 
A  great  loss  shown  by  proper  accounting  .  .  .  Losses  on  water- 
works, gas-works,  street-railways  and  electricity  works  as  shown 
by  Municipal  balance  sheets. 

IT  is  not  a  far  cry  from  fictitious  assessment 
values  (which  beguile  investors  in  municipal 
stocks  into  the  belief  that  they  have  sound  se- 
curity for  their  money)  to  fictitious  profits  alleged 
to  be  made  out  of  the  undertakings  in  which  the 
investors'  money  is  spent.  And  these  alleged  prof- 
its are  flaunted  before  the  taxpayer  to  persuade 
him  that  they  are  affording  him  relief  in  taxation. 
But  as  neither  a  reduction  in  assessment  value  nor 
in  the  tax  levy  simultaneously  occurs  with  the  as- 

207 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

certaining  of  these  '^profits,"  a  taxpayer  has  some 
excuse  for  doubting  whether  they  yield  any  benefit 
to  him  at  all.  It  is  poor  consolation  for  him  to  be 
told  that  but  for  these  ' '  profits ' '  his  tax  bill  would 
be  higher;  it  rather  leads  him  to  the  conclusion 
that  if  the  municipal ' '  reproductive ' '  undertaking 
had  no  existence,  he  would  not  be  a  cent  the  worse, 
since,  with  its  existence,  he  .is  not  a  cent  the  better. 
This  is  the  point  of  view  of  the  plain  man.  But 
his  taxes  would  really  be  decreased  if  the  under- 
taking had  no  existence.  Ignorant  as  he  is  likely 
to  be  of  the  strange  ways  of  municipal  account- 
ing, it  does  not  dawn  on  him  that  the  annual  mu- 
nicipal balance-sheet  of  the  particular  undertak- 
ing is  prepared  for  his  special  behoof,  and  could 
easily  be  pulled  to  shreds  and  tatters  by  the  raw- 
est student  of  a  school  of  accounting.  Let  it  be 
assumed  that  in  a  given  year  a  municipal  ''re- 
productive" undertaking  had  an  actual  revenue 
of  $125,000,  an  actual  expenditure  inclusive  of 
payment  of  prior  charges  for  interest  on  capital, 
etc.,  of  $175,000,  and  yet  showed  a  ''profit"  of 
$25,000.  It  is  of  course  a  loss  of  $50,000.  But 
by  debiting  $75,000  to  the  general  municipal  ac- 
count, thereby  reducing  the  expenditure  of  the 
undertaking  as  set  out  in  the  balance-sheet  to  that 
amount,  or  in  other  ways  keeping  out  of  the  bal- 
ance-sheet items  actually  incurred  which  should 

208 


DELUSIVE  DEM0NSTEATI0N8  OF  PEOFITS 

appear  on  the  debit  side  of  the  account,  the  under- 
taking is  made  to  show  a  profit  of  $25,000,  placed 
"in  relief  of  taxes."  It  is  the  hidden  presence 
of  the  $75,000  as  a  debit  item  in  the  general  mu- 
nicipal account,  probably  spread  over  a  number 
of  entries,  which  is  really  spent  in  respect  of  the 
undertaking  but  not  charged  to  it,  that  prevents 
the  tax  levy  from  being  reduced.  If  the  under- 
taking did  not  exist,  there  would  be  no  occasion 
for  resorting  to  such  a  device  on  the  part  of  a 
municipality  anxious  to  give  an  account  of  its 
stewardship,  and  the  amount  necessary  for  tax- 
ation would  be  proportionately  reduced. 

The  example  is  a  broad  one,  but  the  principle 
of  it  is  commonly  practiced  to  a  more  or  less  de- 
gree by  many  British  municipalities,  and  in  cast- 
ing about  for  illustrations,  the  difficulty  would  be 
to  limit  their  number.  The  method  has  been  com- 
pared to  the  success  of  the  child  who  made  a  good 
profit  out  of  poultry  when  his  parents  provided 
the  food  and  the  upkeep  and  paid  for  the  eggs. 
In  a  general  wary,  the  example  of  the  child's 
poultry  farm  applies  to  municipal  undertakings, 
as  their  results  are  made  to  appear  in  the  profit 
and  loss  accounts. 

That  profits  in  gas,  water  and  street  railways 
are  made  by  municipalities  there  is  no  doubt,  but 
when  such  results  are  invidiously  compared  with 
u  209 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

private  operation,  the  municipalities  can  only  hope 
to  show  that  public  operation  is  '* superior"  by 
first  submitting  the  expenditure  side  of  the  un- 
dertakings to  a  process  of  attenuation  before 
final  publication  of  the  accounts.  There  could  be 
no  stronger  evidence  than  this  that  they  them- 
selves are  secretly  conscious  of  their  unfitness  to 
handle  the  particular  utility,  especially  when  it 
is  borne  in  mind  that  they  enjoy  a  monopoly,  and 
being  thus  exempt  from  competition,  their  reve- 
nue rolls  in  without  their  being  compelled  to  spend 
a  cent  of  it  in  respect  of  outlays  which  two  com- 
petitive companies  would  be  driven  to  undergo  in 
order  to  checkmate  one  another.  They  are  on  safer 
ground  when  they  abandon  altogether  the  quest 
for  "profits"— whether  they  are  really  to  be 
made,  or  only  to  be  concocted  in  the  balance- 
sheets.  Generally,  however,  they  are  dominated 
by  what  Mr.  Bernard  Shaw  ^  calls  * '  the  commer- 
cial view."  As  this  candid  friend  of  the  munici- 
palities puts  it,  ''they  often  encourage  themselves 
rather  childishly,  keeping  their  accounts  in  such 
a  way  as  to  produce  the  utmost  possible  appear- 
ance of  commercial  prosperity  by  throwing  as 
much  as  possible  of  the  expenses  on  the  general 
rate  whilst  crediting  the  receipts  of  each  munici- 
pal service  to  its  special  department."    ''When  a 

* ' '  The  Common-Sense  of  Municipal  Trading, ' '  chapter  xi. 

210 


DELUSIVE  DEMONSTRATIONS  OF  PEOFITS 

municipal  electric-lighting  undertaking  shows  a 
profit,  which  is  handed  over  to  the  relief  of  the 
taxes,  is  a  taxpayer,  who  is  also  a  consumer  of 
electricity,  gratified  by  the  intelligence?"  asks 
Mr.  Shaw.^  ''Not  at  all,"  he  answers;  '*he  in- 
dignantly demands  what  the  municipality  means 
by  overcharging  him  for  current  in  order  to  re- 
lieve the  rates  of  his  neighbors  who  burn  gas  or 
oil.  And  his  protest  is  perfectly  justified.  The 
object  of  Municipal  Trading  is  not  relief  of  rates: 
if  it  were,  it  might  be  manipulated  so  as  to  throw 
the  entire  burden  of  local  taxation  on  certain 
classes  of  consumers  exactly  as  the  entire  burden 
of  local  taxation  in  Monaco  is  thrown  on  the 
gamblers  of  Monte  Carlo." 

No  phase  of  the  Municipal  Ownership  question 
has  provoked  more  controversy  than  this  question 
of  profits.  In  the  United  States  the  profit  argu- 
ment is  put  forward  very  strongly  by  municipal 
socialists ;  in  fact,  it  is  their  strongest  card.  The 
American  tramways,  gas,  electric-lighting,  and 
telephone  service  is  uniformly  up-to-date,  and  the 
companies,  as  a  rule,  seem  ready  to  meet  public 
requirements.  The  only  valid  excuse  for  a 
change  in  policy  is  that  private  companies  are 
making  out  of  public  utilities  too  much  profit  and 
cities  too  little.    Much  of  the  confusion  on  this 

211 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

subject  of  profit  comes  from  the  lack  of  a  clear 
definition  of  the  word  itself.  In  its  business  sense 
the  word  ' '  profit ' '  means  what  is  left  in  a  commer- 
cial operation  after  payment  of  rent,  labor,  raw 
material,  interest  on  borrowed  capital,  taxes,  in- 
surance, remuneration  for  superintendence,  pro- 
vision for  wasting  assets,  and  indemnity  for  risk. 
No  municipal  trader  has  ever  undertaken  to  deal 
with  the  question  of  profits  on  its  merits  with 
this  definition  before  him.  The  more  advanced 
and  enthusiastic  seek  to  evade  the  issue  by  de- 
claring that  there  should  be  no  profits,  that  in- 
dustrial undertakings  should  be  carried  on  at  the 
expense  of  those  who  pay  the  taxes  for  the  joint 
benefit  for  those  who  do  and  those  who  do  not 
pay  taxes.  This  simplifies  matters  for  all  but  the 
very  considerable  body  of  ratepayers  who  do  not 
use  the  particular  utility;  and  this  is  what  Mu- 
nicipal Trading  may  come  to.  Another  class  of 
municipal  traders  content  themselves  with  hope- 
lessly mixing  up  ''profits"  derived  from  trade  as 
above  defined  and  ''profits"  derived  from  the 
grant  of  rights  or  monopolies.  It  is  only  by  this 
deliberate  confusion  of  terms  that  they  can  hope 
to  show  that  the  ratepayers  must  be  better  off  if 
they  work  these  undertakings  themselves  than  if 
they  leave  them  to  companies,  as  is  done  in  the 
United  States.    I  have  never  seen  this  important 

212 


DELUSIVE  DEMONSTEATIONS  OF  PROFITS 

difference  more  clearly  stated  than  by  Mr.  Arthur 
Chamberlain,  of  Birmingham,  in  a  letter  he  wrote 
once  to  the  taxpayers  of  that  city,  in  which  he 
said:  *'I  understand  the  argument  that  whatever 
profit  there  is  the  ratepayers  should  have— and 
I  agree ;  but  I  distinguish  between  the  profit  that 
is  due  to  the  grant  of  a  monopoly  and  that  which 
attaches  to  the  employment  of  capital  and  its 
management.  The  one  should  be  a  certainty ;  the 
other  must  always  be  a  speculation.  Now,  I  say, 
let  the  ratepayers  take  the  certainty  and  leave  the 
speculation  to  the  speculators."  No  less  plainly 
has  the  position  been  put  by  Mr.  J.  A.  R.  Mar- 
riott i^ 

To  secure  high  profits — except,  of  course,  from  monop- 
olies—you must,  as  a  rule,  take  large  risks.  If  the  ele- 
ment of  risk  be  absent  or  slight,  competition  will  quite 
certainly  come  in  and  automatically  reduce  the  profit  to 
a  minimum.  But  if  the  element  of  risk  be  present,  in 
however  small  a  degree,  corporations,  standing  in  a 
fiduciary  relation  to  the  ratepayers,  have  no  right  to  em- 
bark upon  the  business.  But  nakedly  and  broadly  it 
comes  to  this :  all  trading  must  be,  in  a  greater  or  less 
degree,  speculative;  and  local  authorities,  by  general 
admission,  have  no  business  to  speculate.  From  whence 
do  they  derive  the  wherewithal  to  speculate?  Either 
directly  from  the  rates,  or  else  from  loans  borrowed 
upon  the  security  of  the  rates.  In  either  case,  it  is  the 
ratepayer,  involved  with  or  without  his  own  consent  in 

»" Fortnightly  Review,"  December,  1902. 

213 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

a  speculative  concern,  who  has  to  bear  any  loss  which 
may  be  incurred. 

So  far  United  States  citizens  have  preferred 
the  certainty  of  the  meat  in  their  mouths  to  the 
attractive  reflection  in  the  stream.  This  finds 
expression  in  the  contracts  of  New  York  and  Bos- 
ton for  building  and  operating  the  new  subways, 
which  were  let  to  private  companies  under  con- 
trol of  the  municipalities,  and  to  a  more  or  less 
extent  in  all  recent  legislation  relating  to  the  use 
of  streets  and  taxation  of  franchises.  It  has 
always  been  found  possible,  by  increasing  the 
rates  of  State  and  municipal  taxation  of  these 
franchises,  to  secure  a  more  equitable  share  of 
profits  from  monopolies  without  saddling  the  risk 
upon  the  taxpayers. 

In  Dublin,  for  instance,  there  is  an  electrical 
system  of  street-railways,  extending  to  close  on 
fifty  miles  of  track,  which  contributes  $75,000  a 
year  to  the  municipal  treasury  by  way  of  rent  paid 
by  the  company  operating  it.  This  forms  a  regu- 
lar annual  revenue  which,  were  the  lines  munici- 
pally managed,  would  conceivably  be  maintained 
at  the  same  level  if  higher  working  cost  had  not 
become  recognized  as  a  first  principle  of  munici- 
pal conduct  of  public  utilities;  and,  as  has  been 
shown,  the  effect  of  this  disability  is  usually  made 
to  appear  less  by  not  debiting  to  the  undertaking 

214 


DELUSIVE  DEMONSTRATIONS  OF  PROFITS 

various  outlays  made  in  respect  of  it.  A  case  in 
point  is  Liverpool.  At  the  end  of  last  year  the 
local  debt  had  been  increased  by  over  $5,000,000 
for  street  widenings  made  on  account  of  the  mu- 
nicipal tramways,  but  when  it  was  proposed  to 
charge  the  tramway  undertaking  with  a  portion 
of  the  expense,  the  motion  was  defeated.  Had 
this  business-like  policy  been  adopted,  instead  of 
the  whole  cost  being  thrown  on  the  general  muni- 
cipal account,  i.e.,  the  taxes,  the  Municipal  Trad- 
ing party  would  naturally  be  deprived  of  the  op- 
portunity of  boasting  that  profits  had  been  made 
and  applied  in  relief  of  the  taxes,  or  else  the  profits 
would  be  very  small  indeed.  Another  municipal- 
ity boasted  of  large  street-railway  profits.  Steps 
were  taken  to  examine  the  accounts,  and  it  was 
found  that  $1,500,000  had  been  charged  to  the 
public  works  committee  of  this  municipality  for 
street  widening,  necessitated  entirely  by  the  in- 
stallation of  street-railways. 

This  method  illustrates  the  financial  side  of 
street  widenings  for  the  purpose  of  tramway  ex- 
tensions, when,  in  the  one  case,  they  are  under- 
taken by  the  local  authority,  and  when,  in  the 
other,  undertaken  by  a  private  company,  which 
would  be  called  upon  to  make  the  widening  as  a 
condition  to  their  extending  their  lines.  We  may 
pass  by  a  discussion  of  the  right  of  the  local  au- 

215 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

thority  to  jump  at  the  chance  of  getting  a  road 
widened  at  the  expense  of  a  private  company 
which  desires  to  extend  its  lines,^  when  it  is  strictly 
more  of  a  municipal  duty  than  their  trading  prac- 
tices. It  is,  however,  a  duty  which  sometimes  the 
local  authority  cannot  avoid  performing  where 
their  own  tramway  extensions  are  concerned ;  but 
of  the  cost  incurred  in  such  a  street  widening, 
made  wholly  on  account  of  the  municipal  tramway 
extension,  the  general  practice  is  to  debit  only  a 
third  of  the  capital  expenditure  of  the  scheme,  and 
the  other  two-thirds  come  out  of  the  taxes. 

The  London  County  Council,  however,  have 
gone  much  farther  than  this.  Their  tramway 
extensions  necessitated  extensive  street  improve- 
ments, costing  some  millions  sterling;  and  only  a 
tithe  of  the  sum  spent  has  been  allowed  to 
appear  in  the  tramway's  account,  the  other  nine- 
tenths  falling  on  the  taxes.  This  easy  method  of 
relieving  the  capital  expenditure  of  a  municipal 
undertaking  became  revealed  by  the  publication 
of  a  report  wrung  from  the  Council  by  the  Moder- 
ate Party  in  order  that  some  light  might  be  thrown 
upon  the  remarkable  absence  from  the  tramway's 
account  of  considerable  capital  expenditure  made 

*  The  London  United  Tramways  Co.  have  spent,  according  to  the 
evidence  of  Sir  J.  Clifton  Robinson  before  the  Royal  Commission 
on  London  Traffic,  a  sum  of  $5,000,000  in  respect  of  road  improve- 
ments and  way-leaves  in  connection  with  their  extensions. 

216 


DELUSIVE  DEMONSTRATIONS  OF  PROFITS 

solely  on  account  of  the  tramways.  It  was  ascer- 
tained to  be  no  less  than  £4,044,844  ($20,224,220) 
of  which  only  £377,260  ($1,886,300)  was  debited 
to  the  tramway  undertaking.  The  people  of  Lon- 
don were  saddled  with  the  rest.  A  member  of 
the  Council  (Captain  Swinton),  on  whose  motion 
the  report  had  been  made,  accused  the  Council 
of  misleading  the  taxpayers  into  the  belief  that 
the  tramways  paid  one-third  of  the  cost  of  street 
widenings.  As  reported,^  his  remarks,  at  the 
Council  meeting  at  which  the  report  came  up  for 
discussion,  illuminate  the  deceiving  tactics  of  the 
municipalities,  whereby  their  trading  undertak- 
ings acquire  a  meretricious  appearance  of  sound- 
ness. He  showed  that,  included  in  the  sum  of 
£4,044,844,  were  three  items  amounting  to  £1,- 
106,354  ($5,531,770),  of  which  only  £621  ($3,105) 
was  charged  against  the  tramways.  After  al- 
lowing for  a  sum  of  £1,007,354,  the  expenditure 
of  which  might  be  justified  for  necessary  im- 
provements of  the  general  traffic,  there  remained 
£3,000,000  ($15,000,000),  of  which  there  was  no 
evidence  to  show  that  any  portion  would  have  been 
spent  except  for  tramway  purposes,  and  yet  only 
one-eighth  of  it  appeared  in  the  tramway's  ac- 
count. 
But  this  was  not  all.     The  inflation  of  tramway 

»" London  Morning  Post,"  October  17,  1906. 
217 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

profits  is  further  helped  by  charging  a  wholly  in- 
adequate sum  for  the  services  of  the  Council's 
central  staff.  Captain  Swinton  showed  that  since 
the  Council  entered  into  the  tramway  business, 
"the  cost  of  the  central  office  had  amounted  in 
all  to  about  £1,200,000  ($6,000,000),  and  towards 
this  there  had  been  paid,  in  respect  of  the  work 
of  the  tramways,  the  ridiculous  sum  of  £8,160 
($40,800)  on  revenue  account.  Until  last  July 
there  was  no  charge  at  all  made  against  the  tram- 
ways in  respect  of  the  clerks'  department.  The 
parliamentary  branch  naturally  did  a  great  deal 
of  work  for  the  tramways,  and  yet  nothing  was 
charged  in  respect  of  that.  Business  men  would 
probably  tell  them  that  the  tramway  enterprise  of 
the  Council  owed  London  a  million  of  money.  At 
least,  so  far  from  having  made  a  profit,  it  owed 
London  half  a  million. ' ' 

To  this  searching  criticism  the  Progressives  re- 
sponded by  the  old  accusation  that  the  Moderates 
desired  to  destroy  the  municipal  tramways.  So 
far  from  that  being  true,  the  Moderates  only  re- 
quired that  all  proper  charges  should  be  debited 
to  the  tramways  undertaking,  and  that  its  devel- 
opment should  be  conducted  on  business  lines  to 
enable  them  to  know  exactly  what  it  cost. 

A  private  company  has  no  such  devices  at  hand 
by  means  of  which  it  can  elude  the  debiting  of 

218 


DELUSIVE  DEMONSTEATIONS  OF  PEOFITS 

capital  expenditure  incurred  in  relation  to  its  busi- 
ness. On  being  forced  to  undertake  a  street 
widening  it  must  naturally  place  the  whole  of  its 
cost  to  capital  account.  Nor  can  office  and  cleri- 
cal expenses  be  omitted  from,  or  only  partially 
appear  in,  its  revenue  account.  Hence  we  have, 
on  a  comparison  of  municipal  and  private  tram- 
way profits,  important  capital  and  revenue  items 
only  partly  shown  in  the  municipal  and  fully 
shown  in  company  accounts;  but,  strange  as  it 
may  seem,  this  inequality  in  the  apportionment 
of  the  capital  and  revenue  expenditure  in  respect 
of  tramway  extensions  does  not  turn  the  scale  in 
favor  of  municipal  profits. 

The  superiority  of  private  operation  on  the 
*^ profit"  argument  has  already  been  shown  by  the 
history  of  the  Northern  lines  before  they  passed 
into  the  control  of  the  London  County  Council.* 
The  Council  now  owns  ninety-nine  miles  of 
tramways,  namely:  fifty-one  miles  on  the  Surrey 
side  of  the  river— the  Southern  lines;  and  forty- 
eight  miles  on  the  Middlesex  side— the  Northern 
lines,  the  latter,  up  to  April  of  1906,  worked 
by  the  Metropolitan  Tramway  Company  on  a 
lease  from  the  Council,  now  extinguished.  From 
1894  up  to  March  31,  1906,  the  profits  realized 
from  both   systems  which  were  applied  to  the 

*  Chapter  IX. 

219 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

relief  of  taxation— the  Southern,  be  it  remembered, 
operated  by  the  Council,  and  the  Northern  leased 
to  and  operated  by  a  company— have  amounted  to 
£293,592  ($1,467,960).  This  is  the  record  for  the 
twelve  years  in  which  the  Council  has  been  inter- 
ested in  tramways.  The  total  earnings  of  the  South- 
ern and  Northern  system  in  this  period  totaled 
£326,581  ($1,634,905),  of  which  £314,337  ($1,571,- 
685),  or  96  per  cent.,  was  earned  by  private  enter- 
prise. Since  1900  the  Council  has  earned  from  the 
Southern  system,  which  it  operates  itself,  a  sum  of 
£23,909  ($119,545),  while  from  the  Northern  sys- 
tem, operated  by  a  company,  the  taxpayers  have 
received  no  less  than  £191,595  ($957,975).  It  is 
apparent,  therefore,  that  had  the  County  Council 
leased  the  Southern  system  also  to  a  company, 
instead  of  working  it  themselves,  London  taxpay- 
ers would  have  gained  something  like  $840,000. 
Even  the  small  profit  the  Council  have  obtained 
from  the  Southern  lines  has  only  been  possible 
by  setting  aside  a  wholly  inadequate  sum  for  de- 
preciation—only 1.1  per  cent,  on  the  capital  cost. 
The  Council 's  own  expert  has  admitted  that  if  Id. 
(2  cents)  per  car  mile  for  renewal,  which  had  been 
allowed  in  previous  years,  had  still  been  main- 
tained, there  would  have  been  a  loss  of  £4,000 
($20,000)  instead  of  a  profit  of  that  figure  for 
1905-6.    As  a  matter  of  fact  the  Council  have  only 

220 


DELUSIVE  DEMONSTRATIONS  OF  PROFITS 

set  aside  for  depreciation  during  the  past  four 
years  an  average  per  car  mile  of  considerably  less 
than  one  cent  a  year. 

The  difference  in  the  working  of  the  two  sys- 
tems will  be  better  shown  by  this  table  of  profits 
for  the  past  two  financial  years : 


fear 


Net  Profits  of  North-  Net  Profits  of  South, 
em  lines  leased  to  em  lines 

and  worked  by  a  worked  by- 

Company  Kunicipality 

1904-5 $114,180  $35,270 

1905-6 137,875  11,595 

In  the  financial  years  1902-3,  and  1903-4  the 
Southern  lines  had  deficits  of  $11,250  and  $41,000 
respectively,  so  that  the  fact  that  the  London 
County  Council  had  turned  a  deficit  into  a  profit, 
though  a  diminishing  one,  may  be  counted  for 
righteousness.  But  the  public  spokesmen  for  the 
Council,  in  defending  the  tramway  policy,  find 
they  are  on  such  thin  ice  when  the  results  of  the 
Southern  lines  are  mentioned  that  they  evade  dis- 
cussing them  altogether,  and  endeavor  to  make 
capital  out  of  the  whole  sum,  including  the  profits 
of  the  privately  worked  Northern  lines,  which  the 
London  tramway  revenues  have  contributed  in 
relief  of  taxes.  But  it  has  to  be  emphasized,  as 
"Engineering"  has  pointed  out,  that  these  pay- 
ments in  aid  of  taxation,  though  derived  from  tram- 
way revenues,  come  mostly,  as  I  have  above  clearly 

221 


THE  DANGEES  OF  MUNICIPAL  OWNEBSHIP 

shown,  from  the  money  paid  to  the  Council  by  the 
lessees  of  the  northern  tramways  as  an  equiva- 
lent of  rental  for  way-leaves.  ''They  were  not 
earned  by  the  County  Council,"  remarks  this  jour- 
nal, ''they  are  not  the  results  of  the  Council's  mu- 
nicipal trading;  but,  on  the  contrary,  ceased  be- 
cause, and  when,  the  Council  entered  on  munici- 
pal trading  in  tramways.  So  long  as  the  tram- 
ways were  leased,  the  ratepayer  got  relief  without 
pledging  his  credit  for  the  success  or  failure  of 
a  speculative  undertaking."  There  is  abundant 
ground  for  the  assumption  made  here  that,  now 
the  London  County  Council  have  obtained  full 
possession  of  the  profitable  Northern  lines,  their 
value  to  the  taxpayers  will  diminish  to  the  level 
of  the  Southern  lines  under  municipal  working. 

Much  has  been  said  about  the  successful  Glas- 
gow tramways,  but  the  annual  results  of  their  work- 
ing show  nothing  which  could  not  have  been 
achieved  by  a  company.  The  sum  contributed  to 
taxes  out  of  the  total  receipts  in  1905,  amounting 
to  $3,823,955,  was  only  $125,000.  With  that  figure 
the  Dublin  company's  annual  contribution  to  the 
town  fund  of  that  city  ($75,000)  out  of  receipts 
amounting  to  $1,350,000,  or  a  third  less  than  the 
Glasgow  receipts,  compares  very  well.  The  value 
of  the  Glasgow  undertaking  as  a  profitable  con- 
cern is  certainly  not  increasing,  though  the  vol- 

222 


DELUSIVE  DEMONSTEATIONS  OF  PEOFITS 

ume  of  the  traffic  is.  This  will  be  seen  by  the  fol- 
lowing table : 

Tear  to  May  31  Tofad  Passenger  Average  Receipts. 

'  Receipts  Car  Mole,  Cents 

1901-2  $3,064,130  23.32 

1902-3  3,266,000  22.38 

1903-4  3,589,465  21.16 

1904-5  3,782,400  20.24 

The  steady  decrease  in  the  average  receipts 
per  car  mile  works  out  at  more  than  three  cents  in 
four  years.  The  average  fare  is  0.46d.,  or  nearly 
a  cent  per  mile,  and  as  this  is  practically  the  uni- 
versal standard  of  tramway  travel,  Glasgow  tram- 
way fares  are  not  cheaper  than  those  of  other 
towns.  The  municipality  depends  upon  the 
** profit"  theory  in  relief  of  taxes,  but  it  does  not 
succeed  in  contributing  more  than  $125,000  an- 
nually thereto,  or,  if  it  does,  other  items  suffer  by 
being  insufficiently  charged.^  Even  if  political  con- 
siderations urge  the  Council  to  increase  the  tax- 
relief,  when  one  remembers  that  there  is  nothing 
exceptional  about  the  fares  and  stages  in  Glasgow, 
nothing  in  any  way  dissimilar  from  the  conditions 
of  company  working,  the  contributions  to  the  Com- 
mon Good  Fund  are  a  poor  reward  for  taking  the 

*  In  the  financial  year  ending  May  31,  1906,  the  municipality 
improved  on  this  sum  by  placing  $175,000  out  of  the  tramway 
revenue  to  the  Common  Good  Fund.  The  elections  took  place  in 
November. 

223 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

permanent  responsibility  of  this  vast  undertaking. 
If  tax-aid  is  wanted,  a  company  would  readily  un- 
dertake to  give  $200,000  a  year  out  of  a  gross 
revenue  exceeding  $4,000,000  which  the  Glasgow 
tramways  yield.  In  fact,  if  I  remember  right, 
$225,000  a  year  has  been  offered  the  municipality 
by  a  company,  and  I  am  not  so  sure  that  it  was 
not  $375,000.  An  official  of  the  old  Glasgow  tram- 
ways company  takes  the  same  view.  Comparing 
the  money  drawings  and  the  mileage  of  the 
present  Glasgow  tramways  with  the  old,  and 
what  the  old  company  paid  to  the  town  fund 
on  the  same  basis,  $500,000  is  under  and  not  over 
the  estimated  sum  that  the  Municipal  Tramways 
Department  should  be  paying.  Any  business  man 
will  agree  that  a  monopoly  of  the  streets  of  the 
city,  such  as  the  municipality  possesses,  would  be 
worth  a  good  deal  more  than  $500,000  per  annum 
to  any  commercial  concern.  Glasgow  and  other 
chief  cities  of  the  United  Kingdom,  represent 
municipal  control  of  street-railways  at  its  best ;  but 
the  level  of  efficiency  they  reach  is  equalled  and 
exceeded,  as  the  general  public  would  amply  tes- 
tify, by  two  great  street-railway  corporations— to 
name  no  others— the  London  United  Tramway 
Company,  and  the  British  Electric  Traction  Com- 
pany. 

It  is  a  short  step  from  municipal  tramways  to 
224 


DELUSIVE  DEMONSTItATIONS  OP  PEOFITS 

the  electrical  works  which  supply  them  with 
power;  but  it  is  difficult  to  consider  them  in  con- 
nection with  *' profits"  at  all.  However,  as  it 
has  been  ascertained  that  the  principal  municipal 
electricity  works  in  the  United  Kingdom,  with  a 
capital  sunk  in  them  approximating  $140,000,000, 
in  1905  realized  a  ''profit"  of  $5,635,000,  the 
statement  calls  for  inclusion  under  this  head, 
even  though  it  may  not,  like  many  street-railway 
' '  profits, ' '  bear  investigation.  The  capital  named 
represents  184  chief  undertakings.  Of  the 
profits  stated  ($5,635,000),  five  millions  was  pro- 
duced by  the  first  twenty  concerns  (the  ten  larg- 
est producing  two-thirds  of  the  whole  amount), 
and  the  remaining  $635,000  has  been  credited  to 
164  undertakings  with  $75,000,000  capital,  this 
showing  a  return  of  less  than  one  per  cent.  Of 
these,  however,  sixty-nine  undertakings,  represent- 
ing $15,000,000  capital  outlay,  showed  a  net  annual 
loss  of  $350,000.  Let  us  take  the  other  side  of  the 
picture.  Sixty  electrical  companies  in  the  United 
Kingdom,  with  a  capital  of  $85,000,000,  in  1905 
yielded  a  profit  of  $10,000,000  or  113^  per  cent. 
Here  we  find  companies  paying  substantial  divi- 
dends and  placing  adequate  sums  to  depreciation 
and  reserve  in  spite  of  municipalities  having  the 
great  advantage  of  the  load  and  revenue  obtained 
from  street-lighting.  Municipalities  providing 
15  225 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

themselves  with  electric  supply  for  street  light- 
ing from  their  own  works  have  at  hand  one  of  the 
simplest  means  of  making  their  electrical  under- 
takings profitable,  and  where  profits  are  shown, 
this  mainly  produces  them.  Further  profits  are 
created  by  their  obtaining  the  energy  required 
for  their  tramway  services  from  their  electricity 
works.  Where  the  latter  are  profitable,  there- 
fore, it  is,  in  the  main,  through  the  authorities  be- 
ing their  own  customers.  But  even  when  the  rev- 
enue is  thus  certain  and  abundant,  municipalities 
cannot  avoid  the  vice  of  an  acute  company  pro- 
moter; they  endeavor  to  make  the  ''profit"  look 
more.  Added  to  the  device,  already  illustrated, 
of  not  debiting  to  the  expenditure  side  of  the  ac- 
count all  outlays  made  in  respect  of  the  under- 
taking, which  effects  this  pleasing  result,  regard 
must  be  had  to  the  equally  important  omission  of 
items  covering  depreciation  and  renewal  of  plant, 
and  an  insufficient  sinking-fund. 

The  last-named  defects  of  municipal  manage- 
ment, whilst  particularly  conspicuous  in  the  con- 
duct of  electrical  undertakings,  more  or  less  char- 
acterize all  municipal  ''reproductive"  concerns. 
It  will  be  useful  to  consider,  before  leaving  this 
question  of  municipal  profits,  what  aspect  they 
would  show  if  proper  recognition  were  given  to 
the  necessity  of  deducting  out  of  profits  and  debit- 

226 


DELUSIVE  DEMONSTRATIONS  OF  PROFITS 

ing  to  the  undertaking  sufficient  sums  to  cover 
the  yearly  wear  and  tear  of  plant,  and  adequate 
provision  for  redemption  of  capital.  Here  one 
leaves  altogether  the  question  of  the  ethics  of  the 
municipal  control  of  businesses  by  the  aid  of  pub- 
lic money.  But  if  the  ethical  aspect  could  not 
be  dismissed,  two  questions  obtrude:  (1)  if  mu- 
nicipal undertakings  are  really— as  they  are 
claimed  to  be— so  many  flourishing  enterprises, 
then  they  justify  the  extension  of  local  debt  and 
high  taxes;  and  (2)  if  they  are  otherwise,  they 
show  the  unsoundness  of  the  municipal  finance 
revealed  by  such  enterprises,  and  its  danger  to 
the  welfare  of  any  country  sanctioning  them. 

On  March  31,  1902,  $605,000,000  was  invested  in 
municipal  ''reproductive"  undertakings  in  the 
United  Kingdom,  of  which  $505,000,000  remained 
as  borrowed  capital.  These  undertakings  num- 
bered 1,060  and  included  waterworks,  gas-works, 
electricity  supply,  tramways,  markets,  docks  and 
harbors,  burial-grounds,  baths  and  wash-houses, 
working-class  dwellings,  bridges,  canals,  cold- 
stores,  crematoriums,  race-courses,  estates,  fer- 
ries, marine  baths,  concert  rooms,  theaters,  and 
golf  links,  not  to  mention  oyster  culture,  rabbit- 
warrens,  and  pig-keeping. 

To  provide  for  paying  off  the  sum  of  $505,000,- 
000,  the  assets  of  which  are  represented  by  the 

227 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

plant,  machinery,  etc.,  of  all  these  businesses, 
there  was  a  sinking-fund  at  the  date  named  of 
only  $22,500,000.1  Tq  q^ote  Mr.  J.  Holt  School- 
ing,2 ' '  a  common  argument  in  favor  of  the  munici- 
palities is  that  this  debt  is  justified  by  the  pos- 
session of  the  businesses  created  by  the  debt.  But 
the  validity  of  this  plea  must  depend  upon  the  re- 
sults of  the  working  of  the  various  businesses. 
If  these  are  being  worked  at  no  profit,  but  merely 
with  an  adequate  yearly  allowance  for  deprecia- 
tion of  plant,  etc.,  and  without  any  charge  upon 
the  taxes,  then  this  plea  may  hold  good  from  a 
financial  point  of  view:  assuming  that  the  $605,- 
000,000  has  been  judiciously  spent— a  rather 
large  assumption.  But  if  these  businesses  are 
being  worked  at  a  yearly  loss,  if  there  is  no  ade- 
quate allowance  made  for  depreciation  of  plant, 
machinery,  etc.,  if  taxpayers  have  to  make  good 
a  yearly  deficiency  on  the  actual  working  of  these 
businesses,  then  this  plea  of  justification  for  the 

*A  wholly  illusory  protection  (apart  from  the  inadequacy  of 
the  sums),  because,  by  the  municipalities'  ingenious  manoeuvre  of 
getting  a  provision  inserted  in  their  parliamentary  bills  authoriz- 
ing the  investment  of  their  sinking  funds  in  their  own  securities, 
the  condition  of  the  undertaking,  w^hen  the  forty  or  sixty  years' 
loan  for  it  has  expired,  will  be:  worn  or  obsolete  machinery, 
the  permanent  way  a  streak  of  rust,  and  the  sinking  fund, 
which  should  be  available  for  paying  off  the  debt,  represented  by 
the  municipal  estate,  probably  unrealizable  as  an  asset  to  the 
borrower  demanding  repayment  of  his  money. 

» * '  Local  Finance, "  "  Fortnightly  Eeview, ' '  August,  1906. 

228 


DELUSIVE  DEMONSTBATIONS  OF  PEOFITS 

debt  upon  these  reproductive  undertakings  is 
wholly  invalid,  and  the  finance  of  them  is  abso- 
lutely unsound."  The  following  table  has  been 
prepared  by  Mr.  Schooling,  which  shows  the 
yearly  average  during  the  four  years  ended  March 
31,  1902,  with  regard  to  the  working  of  all  these 
reproductive  undertakings : 

Average  yearly  income $65,200,000 

Average  yearly  working  ex- 
penses      $41,145,000 

Average  yearly  payment  of  in- 
terest, etc.,  on  borrowed 
capital   21,200,000 

Average     yearly     amount     set 

aside  for  depreciation  ....         965,000 

Average  yearly  expenditure  . . .  63,310,000 


Average  yearly  net  profit $  1,890,000 


This  profit  of  $1,890,000  on  a  capital  of  $605,000,- 
000  works  out  at  about  one-third  per  cent.— a  small 
return  which  may  suflSce  for  a  municipality,  but 
would  spell  ruin  to  a  private  trader.  As  showing, 
on  the  face  of  it,  that  there  is  no  loss,  such  a  profit 
may  pass— if  the  amount  set  aside  for  deprecia- 
tion ($965,000)  would  bear  scrutiny.  But  it  will 
not.    It  is  only  between  one-sixth  and  one-seventh 

229 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

per  cent,  of  the  capital  invested.  Quite  a  number 
of  the  undertakings  are  not  debited  with  any  de- 
preciation at  all.  One  must  agree  with  Mr. 
Schooling  when  he  says  that  such  a  provision  for 
depreciation  of  plant,  machinery,  etc.,  bought  out 
of  borrowed  capital,  and  therefore  not  even  paid 
for,  is  grotesquely  inadequate.  As  no  less  than 
$575,000,000  out  of  the  $605,000,000  represents 
capital  sunk  in  waterworks,  gas-works,  electricity 
supply  and  tramways,  the  plant  and  machinery 
of  all  which  undertakings  have  a  short  life,  or  at 
least  an  uncertain  one,  in  view  of  their  possible 
supersession  by  other  improved  methods,  the 
chances  are  that  they  ttIII  be  worn  out  or  replaced 
long  before  the  original  debt  incurred  for  them  is 
paid  off.  It  is  not  going  beyond  the  mark  to  say 
that  such  plant  and  machinery  is  yearly  depre- 
ciating by  wear  and  tear  (to  say  nothing  of  the 
prospect  of  supersession  by  other  inventions, 
which  affect  the  value  of  new  and  old  plant  alike) 
at  the  rate  of  five  per  cent,  of  their  original  cost. 
On  that  basis,  Mr.  Schooling  submits  a  revised 
table  showing  the  real  position  of  all  these  munici- 
pal undertakings,  for  any  other  position  claimed 
for  them  is  false  if  full  regard  is  not  paid  to  the 
uncertain  and  temporary  value  of  the  ''assets." 
This  is  how  the  undertakings  stand  on  a  5  per 
cent,  annual  allowance  for  depreciation: 

230 


DELUSIVE  DEMONSTEATIONS  OF  PROFITS 

Average  yearly  income  (as  be- 
fore)      $65,200,000 

Average  yearly  working  ex- 
penses (as  before)  $41,145,000 

Average  yearly  payments  of  in- 
terest, etc.,  on  borrowed 
capital  (as  before)   21,200,000 

Corrected  yearly  amount  for  de- 
preciation, at  5  per  cent, 
upon  $605,000,000 30,250,000 

Corrected  average  yearly  ex- 
penditure    92,595,000 

Average  yearly  net  loss $27,395,000 


Thus  it  may  be  said  that  a  loss  of  nearly  $28,- 
000,000  is  annually  being  incurred  by  these  1,060 
** reproductive  undertakings,"  to  meet  which  a 
sum  of  only  $1,890,000  is  allowed.  To  again 
quote  Mr.  Schooling, ' '  they  are  worked  by  running 
into  debt,  which  is  constantly  increasing,  and  the 
working  of  them,  in  place  of  being  'reproductive* 
constitutes  an  additional  charge  on  the  taxes. ' ' 

This  conclusion  is  reached  before  any  attempt 
has  been  made  to  survey  actual  municipal  losses. 
But  it  was  only  fair  to  the  municipalities  that  due 
regard  should  be  given  to  their  ''profits,"  and  in 
this  chapter  an  examination  has  been  made  into 
them,  which  ends  in  the  discovery  that  they  are 
really  losses,  though  not  so-called.    To  ascertain 

231 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

that  municipal  ''profits''  are  really  losses  thus 
leads  us  consecutively  to  losses  about  which  there 
is  no  doubt,  which  not  the  most  ingenious  book- 
keeping can  hide,  and  which  stand  out  plain  in  the 
light  of  day.     They  may  be  briefly  summarized. 

A  study  of  the  British  ''Municipal  Year  Book" 
for  1906  yields  the  following  results  of  the  year's 
working  (1904-5)  of  a  number  of  municipal  un- 
dertakings : 

Of  378  waterworks,  252  showed  no  profit. 

Of  177  gas-works,  forty  showed  no  profit,  and 
the  surplus  of  forty-eight  of  those  which  did  were 
not  applied  in  relief  of  taxation,  so  that  the  tax- 
payers of  eighty-eight  towns  out  of  177  obtained 
no  benefit  from  municipal  gas. 

It  may  be  answered  that  the  profits  were  less 
because  cheap  gas  was  sold,  and  it  hardly  needs 
saying  that  there  is  no  reason  why  municipal  works, 
if  managed  with  the  same  economies,  should  not  sell 
gas  cheaper  than  private  companies,  but  municipal 
traders  under  similar  conditions  have  never  yet 
been  able  to  prove  that  they  do.  In  exhibiting  the 
exhilarating  results  of  municipal  trading,  numer- 
,ous  comparative  tables  are  prepared  for  the  rate- 
payers, showing  the  low  price  of  gas  and  elec- 
tricity in  a  city  where  the  municipality  owns  and 
operates  the  plants,  and  the  high  prices  of  the 
same  commodities  in  another  city  where  the  plants 

232 


DELUSIVE  DEMONSTRATIONS  OF  PROFITS 

are  owned  and  operated  by  companies.  These  com- 
parisons do  not  take  into  account  some  little  factor 
like  the  price  of  coal  and  other  raw  materials— 
which  makes  all  the  difference  in  the  world  in 
the  cost  of  electric  light  or  gas— nor  that  a  large 
proportion  of  the  company  gas  and  company  elec- 
tricity is  manufactured  in  London,  where  the  cost 
of  everything  is  higher,  while  the  municipal  gas 
and  electricity  is  nearly  all  manufactured  in 
the  provinces— the  greatest  output  being  on  and 
near  the  coal  fields.^  It  is  easy  enough  to  make 
profits  with  an  absolute  monopoly,  and  charge 
enough  for  the  product.  More  than  half  the  gas 
production  of  England  is  in  the  hands  of  private 
companies.  The  reduction  in  price  of  gas  made 
by  private  companies  in  England  has  been  as 
great,  if  not  greater,  and,  as  a  rule,  the  price 
charged  under  exactly  similar  conditions  is  less 
than  by  municipalities.  In  short,  in  England,  as 
elsewhere,  the  private  companies  have  set  the  pace 
in  enterprise,  quality  of  gas,  and  in  price.  All  en- 
terprise in  the  gas  industry  has  come  from  com- 
panies, because  the  companies  have  greater  motive 
for  enterprise.  The  municipalities  may  follow  pri- 
vate enterprise ;  they  have  never  been  known  to  lead. 

*  See  table  (Chapter  IX)  showing  comparative  cost  of  municipal 
and  company  street  lighting  in  certain  London  boroughs,  where 
conditions  of  cost  apply  alike  to  companies  and  local  authorities. 

233 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

But  to  continue:  Of  fifty-eight  street-railway 
systems,  thirteen  showed  no  profit,  and  the  sur- 
plus of  thirty-five  of  these  which  did  were  not 
applied  in  relief  of  taxation,  so  that  the  taxpayers 
of  forty-eight  towns  out  of  fifty-eight  obtained  no 
benefit  from  municipal  street-railways. 

Of  189  electricity  works,  sixty-four  showed  no 
profit,  and  the  surplus  of  ninety-two  of  those  which 
did  were  not  applied  in  relief  of  taxation,  so  that 
the  taxpayers  of  156  towns  out  of  189  obtained  no 
benefit  through  municipal  electricity  supply. 
This,  however,  is  not  surprising  in  the  case  of 
thirteen  towns  where  the  profits  from  electricity 
supply  were  so  small  as  to  make  the  works  of 
quite  negligible  importance— that  is,  if  the  obtain- 
ing of  profits  is  the  sole  object  of  Municipal  Trad- 
ing.   These  towns  are : 

Profit  on  1904-5  working  Profit  on  1904-6  worMng 

Barnstaple $125  Nuneaton $440 

Colwyn  Bay 300  Perth   120 

Farnworth 310  Rhyl 260 

Fulham   144  Taunton 310 

Gravesend 150  Tynemouth   35 

Hereford 10  West  Hartlepool  ...  105 

Luton 180 

A  proper  allowance  for  depreciation  would 
wipe  out  these  small  surpluses,  and  there  is  no 
doubt,  as  figures  already  quoted  illustrate,  that 

234 


DELUSIVE  DEMONSTRATIONS  OF  PROFITS 

the  same  result  would  follow  if  the  larger  sys- 
tems were  fully  debited  with  a  similar  charge.  As 
it  is,  in  almost  every  case  where  a  profit  is  shown 
from  electricity  works,  it  is  arrived  at  only  by 
ignoring  or  inadequately  recognizing  depreciation 
and  other  items,  which  are  juggled  with  in  order 
that,  by  hook  or  by  crook,  a  surplus  can  be 
squeezed  out  of  the  elastic  figures. 


235 


CHAPTER  XII 

THE   STREET  RAILWAY   TANGLE 

The  Tramways  Act  of  1870  .  .  .  Operation  of  lines  by  municipali- 
ties not  contemplated  .  .  .  Powers  obtained  therefor  by  insert- 
ing provision  in  private  bills,  thus  over-riding  intention  of  gen- 
eral legislation  .  .  .  Deteriorating  effect  on  private  tramway 
systems  confronted  with  the  fate  of  Municipal  expropriation 
.  .  .  Conditions  unfavorable  to  development  and  improvements 
.  .  •  Capital  discouraged  .  .  .  Private  enterprise  and  promo- 
tion of  interurban  extensions  between  municipally  operated 
towns  .  .  .  Municipal  intervention  when  these  connections  are 
successful  .  .  .  Municipal  failure  in  operating  linking  up  lines 
through  parochial  limits  and  jealousies  .  .  .  Inadequate  inter- 
urban connections  in  Great  Britain  in  contrast  with  extensive 
interurban  systems  in  United  States  .  .  .  Municipal  vetoes  re- 
straining street-railway  promotion  within  city  and  district  areas 
.  .  .  Extortion  of  onerous  terras  from  private  companies  .  .  . 
Opinions  of  parliamentary  committees  thereon  ,  .  .  London  Traffic 
Commission 's  recommendation  for  the  abolition  of  the  veto  .  .  . 
Public  Authorities'  Protection  Act  .  .  .  Intrusion  of  the  motor 
omnibus  in  opposition  to  tramways  and  municipal  attitude 
thereto  .  .  .  Anomalous  jurisdiction  of  local  authorities  exer- 
cised to  obstruct  private  street  services. 

IEAVING  the  field  of  inquiry  into  municipal 
A  ** profits,"  it  may  be  advisable  to  look  a  little 
more  closely  into  the  circumstances  which  favored 
the  entrance  of  municipal  councils  into  the  conduct 
of  the  undertakings  referred  to.  I  will  first  take 
street-railways  as  the  utility  which,  more  than  the 
others,  has  brought  municipalities  before  the  pub- 
lic eye  as  "traders";  then  gas  (in  conjunction 
with  electric  lighting  and  power),  telephones,  and 

236 


THE  STREET  RAILWAY  TANGLE 

the  housing  of  the  poor.  The  circumstances  of 
each  provide  abundant  object-lessons  for  Ameri- 
can cities  that  are  disposed  to  hanker  after  the 
possession  of  such  undertakings. 

The  development  of  street-railway  legislation 
in  the  United  Kingdom  is  full  of  the  folly  of  en- 
couraging Municipal  Trading.  Previous  to  1870 
only  a  few  tramways  had  been  built,  and  these  had 
been  promoted  under  the  costly  and  cumbersome 
method  of  submitting  a  "private  bill"  to  Parlia- 
ment. To  obviate  unnecessary  trouble,  waste  of 
time,  and  expense,  a  bill  was  passed  which  enabled 
tramway  promoters  to  apply  directly  to  the  Board 
of  Trade  for  what  is  called  a  tramway  **  pro- 
visional order."  Such  an  order  is  practically  a 
franchise,  and  is  provisional  only  in  the  sense  that 
it  has  to  be  formally  confirmed  by  Parliament  be- 
fore it  can  be  acted  upon.  This  arrangement 
was  embodied  in  the  tramway  act  of  1870  and,  so 
far  as  it  simplified  and  cheapened  procedure,  the 
act  was  welcome.  In  other  respects,  however,  the 
act  was  not  so  well  advised,  since  it  established 
precedents,  which  have  hampered  electrical  enter- 
prise to  a  degree  not  fully  recognized  by  those  who 
have  not  been  engaged  in  the  effort  of  carrying 
out  tramway  schemes  in  England.  When  the 
tramways  act  was  drafted,  the  Government  of  the 
day  was  in  a  zealous  reforming  mood.    The  in- 

237 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

spiration  of  this  enthusiasm  lay  in  the  misdeeds 
of  certain  gas  and  water  monopolies,  which  had 
taken  a  short-sighted  advantage  of  the  too  liberal 
powers  granted  to  them  in  former  years.  There 
was  a  strong  demand  that  the  public  should  be 
protected  from  similar  abuses  of  power,  and,  as 
tramways  were  in  essence  a  monopoly,  Parlia- 
ment was  naturally  inclined  to  include  protec- 
tive measures  in  the  act.    This  it  did  in  two  ways : 

(1)  By  giving  each  local  authority  the  right  of 
vetoing  any  tramway  scheme  within  its  district, 
and, 

(2)  By  imposing  a  tenure  of  only  twenty-one 
years  on  tramway  concessions,  and  giving  each 
local  authority  the  power  of  purchasing  the  under- 
taking at  scrap  value  (otherwise  called  "old-iron" 
or  "marine-store"  prices)  when  the  period  of 
tenure  was  at  an  end. 

Not  a  word  was  said  in  the  act  regarding  the 
working  of  tramways  by  local  authorities.  It  was, 
in  fact,  expressly  pointed  out  by  Mr.  Shaw  Le- 
fevre,  when  the  tramway  bill  was  introduced  in 
1870,  that  its  underlying  principle  was  to  empower 
"local  authorities  to  construct  tramways,  but  not, 
of  course,  work  them."  The  act  merely  contem- 
plated that  the  authorities  should  be  owners  of  the 
tramways,  and  that  they  should  lease  them  to 
companies.    But  as  time  went  on,  and  Municipal 

238 


THE  STREET  RAILWAY  TANGLE 

Trading  became  popular,  local  authorities  eluded 
the  intentions  of  the  act  by  pleading  that  they 
could  not  obtain  satisfactory  leasing  arrange- 
ments. This  pretext  did  not  always  succeed,  but 
where  it  did,  precedents  were  formed  for  the  later 
development  of  municipal  operation  of  street- 
railways.  This  was  done  by  the  simple  expedi- 
ent of  inserting  a  clause  in  the  private  bills  of 
local  authorities,  giving  them  power  to  work  the 
systems,  and  a  great  socialistic  movement  affect- 
ing millions  of  private  capital  was  thus  initiated 
almost  unawares  by  indirect  legislation.  Munici- 
pal working  of  tramways  remains  unrecognized  by 
general  legislation,  and  it  has  never  even  been 
discussed  in  Parliament  as  a  general  principle. 
It  has  covertly  crept  into  use  by  individual  towns 
obtaining  the  sanction  of  parliamentary  commit- 
tees to  work  their  systems,  and  other  towns  were 
quick  to  follow  their  example.  The  securing  of 
the  right  to  operate  street-railways  solely  by  pri- 
vate bills  is  a  curious  illustration  of  how  easily 
British  municipalities  can  obtain  powers  over  and 
above  those  laid  down,  and  never  contemplated  by 
general  statutes.  To  the  extent  to  which  the  tram- 
way act  of  1870  was  intended  to  limit  the  partici- 
pation of  municipalities  in  tramway  control,  there- 
fore, it  has  been  a  failure.  But  private  bill  leg- 
islation has  long  ago  proved  a  serviceable  loop- 

239 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

hole  through  which  acts  of  Parliament  may  be 
evaded. 

So  long  as  parliamentary  committees  declined 
to  grant  the  right  to  municipalities  to  operate 
their  systems  unless  they  failed  to  find  a  lessee— 
which  was  their  rule  up  to  1896— the  relations  be- 
tween local  authorities  and  private  companies 
were  not  materially  changed.  But  the  general  ac- 
ceptance of  municipal  working  altered  a  munici- 
pality's attitude  toward  a  company.  It  was  no 
longer  a  case  of  the  one  being  controller  and  the 
other  submitting  to  control.  The  local  authority 
became  a  potential  competitor.  There  was  no  ques- 
tion of  the  working  franchise  being  renewed  to 
the  company  on  the  expiration  of  the  latter 's  ex- 
isting tenure,  as  intended  by  the  tramway  act. 
The  municipality  was  to  become  the  sole  successor 
to  the  business,  and  the  company  extinguished. 
Pending  that  event,  it  was  hardly  possible  for  a 
local  governing  body  to  confine  its  relations  with 
a  company  to  fair  and  proper  supervision.  A 
company,  whilst  its  franchise  lasted,  in  many 
towns  suffered  from  the  disadvantage  of  being 
regarded  as  an  interloper,  and  incurred  feelings 
of  deep  jealousy  and  hostility  on  the  part  of  the 
municipality. 

It  is  safe  to  say  that  the  then  Government  had 
no  anticipation  of  the  actual  effect  which  munici- 

240 


THE  STREET  RAILWAY  TANGLE 

pal  privileges  would  have  on  the  future  of  the 
tramway  industry;  and  it  is  equally  safe  to  say 
that  succeeding  governments  have  made  but  slow 
efforts  to  improve  matters  now  that  the  unfor- 
tunate incidents  of  the  veto  and  the  conditions 
of  tenure  have  been  felt  over  and  over  again.  The 
attempt  to  regulate  the  powers  of  street-railway 
companies  in  the  public  interest  led  to  restric- 
tions which  were  excessive,  and  so  defeated  its 
own  intention  by  retarding  the  development  of  an 
important  public  service.  In  justice  to  the  Gov- 
ernment, it  must,  nevertheless,  be  admitted  that 
the  full  strangling  influence  of  the  tramway  act 
was  not  felt  until  many  years  after  1870 ;  indeed, 
not  until  the  dawn  of  electric  traction  as  a  com- 
mercial possibility.  That  was  about  1890— twenty 
years  after  the  passing  of  the  act— and  close  upon 
the  time  when  numerous  tramway  franchises  were 
expiring.  At  the  same  period,  moreover,  the  im- 
portant movement  of  municipal  bodies  in  the  di- 
rection of  trading  enterprises  had  already  begun, 
and  was  making  steady  strides  in  popular  favor. 
In  the  coincidence  of  these  three  things— one  leg- 
islative, one  industrial,  and  the  third  social— one 
finds  the  causes  of  the  present  condition  of  elec- 
trical traction  in  England.  To  understand  how 
this  trinity  of  causes  cooperated  to  produce  a 
single  result— putting  back  the  tramway  clock 
i«  241 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

in  England  for  several  years— all  that  is  necessary 
is  to  consider  the  position  of  a  tramway  undertak- 
ing which,  in  or  around  the  years  from  1890  on- 
ward, was  approaching  the  end  of  its  period  of 
tenure.  Confronted  with  the  fate  of  expropria- 
tion in  a  few  years'  time  at  its  ''then  market 
value,"  with  no  allowance  for  goodwill,  or  com- 
pensation for  compulsory  purchase,  anything  like 
fresh  capital  expenditure  on  the  undertaking  was 
out  of  the  question,  and  the  efforts  of  the  manag- 
ers were  naturally  concentrated  on  reducing  ex- 
penses and  husbanding  revenue,  so  as  to  meet,  as 
far  as  possible,  the  inevitable  capital  loss  through 
the  sale  of  the  undertaking  at  old-iron  prices.  The 
unhappy  effect  of  the  limited  tenure  arrangement 
was  to  force  tramway  undertakings  into  a  prema- 
ture condition  of  senile  decay.  No  money  (ex- 
cept what  was  absolutely  necessary)  was  spent 
on  renewals,  or  rolling  stock,  or  permanent 
way;  the  cars  were  even  grudged  fresh  coats  of 
paint,  and  the  conductors  new  uniforms  and  new 
sets  of  buttons,  so  dear  to  the  heart  of  the  public. 
The  service  of  cars  was  limited  as  far  as  possible ; 
extensions  were  not  to  be  thought  of ;  and,  in  short, 
enterprise,  as  it  is  generally  understood,  would 
have  been  a  business  absurdity.  The  last  years 
of  a  tramway  company  were,  therefore,  years  of 
insufficient   and   inefficient   service.    The   public 

242 


THE  STREET  RAILWAY  TANGLB 

gmmbled.  They  called  upon  the  tramways  to 
electrify  their  systems— a  vain  demand,  when 
there  was  no  promise  of  renewal  of  tenure  for 
even  another  twenty-one  years.  As  the  under- 
takings would  soon  fall  into  the  hands  of  local  au- 
thorities, it  was  natural  that  public  opinion  should 
turn  to  them  for  reforms  which  were  apparently 
unreasonably  refused  by  the  private  companies. 
This  expression  of  public  opinion  was  not  made 
in  vain,  and  it  has  placed  the  development  of  in- 
terurban  electric  traction  in  a  difficult  position, 
from  which  it  will  probably  not  emerge  for  a  con- 
siderable period.  One  municipality  after  another 
took  over  its  local  tramway  system  when  the 
period  of  tenure  was  concluded;  and  one  munici- 
pality after  another  decided  to  adopt  electric  in- 
stead of  animal  traction.  This  latter  change  was 
not,  however,  carried  out  with  anything  like  rapid- 
ity. Even  the  most  progressive  of  municipalities, 
and  those  most  enamored  of  trading  projects 
(such  as  Glasgow)  dallied  over  the  problem  of 
conversion  for  a  quite  unnecessary  period;  and 
in  the  hands  of  the  local  authorities  the  progress 
of  electric  traction  has  been  extremely  slow.  Mr. 
E.  Garcke^  has  shown  that  in  1896,  which  may  be 
regarded  as  the  beginning  of  the  period  of  elec- 
tric traction  in  Great  Britain,  there  were  many 

***  London  Times  Engineering  Supplement,"  July  11,  1906. 

243 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

British  towns  and  aggregations  of  towns  with  pop- 
ulations of  100,000  which  had  no  tramway  facili- 
ties at  all.  At  the  same  period,  all  the  cities  of 
the  United  States  of  10,000  inhabitants  and  over, 
and  many  of  the  smaller  towns  exceeding  5,000 
inhabitants,  were  served  with  street-railways. 
"With  good  reason,  therefore,  British  capitalists 
considered  that  there  existed  profitable  scope  for 
the  development  of  electric  traction.  ''American 
tramway  experts, ' '  remarks  Mr.  Garcke, ' '  thought 
so,  too.  The  officers  of  English  tramway  com- 
panies will  recall  the  proposals  they  received  from 
American  financiers  to  electrify  and  extend  their 
tramways;  but  when  these  American  experts  be- 
came acquainted  with  the  conditions  under  which 
the  business  could  be  done,  they,  for  the  most 
part,  went  back  to  the  states  much  wiser,  but  cer- 
tainly not  much  impressed  with  the  ways  of  the 
old  country." 

As  far  as  interurban  electric  lines  were  con- 
cerned, the  part  which  the  local  authorities  played 
was  for  many  years  practically  nil.  Each  local 
authority  thought  only  of  its  own  district,  as  it 
was  naturally  inclined  to  do.  Not  until  the  ex- 
ample of  other  countries  was  afforded,  combined 
with  the  successful  exploitation  of  some  inter- 
urban systems  by  private  enterprise  in  England 
itself,  did  the  local  authorities  begin  to  realize 

244 


THE  STREET  RAILWAY  TANGLE 

that  the  conversion  of  tramways  to  electric  trac- 
tion did  not  merely  enlarge  the  carrying  capacity 
of  the  old  system,  but  greatly  enlarged  the  area 
over  which  the  tramway  systems  should,  in  the 
public  interest,  eitend.  With  horse  traction  the 
limits  of  each  locdl  authority  were  roughly  the 
limits  of  economical  working.  With  electric  trac- 
tion the  parish  became  a  mere  item  in  a  compre- 
hensive system,  which  might  extend  over  a  whole 
country. 

It  remained,  therefore,  for  private  enterprise, 
in  the  face  of  discouraging  legislative  conditions 
and  the  opposing  trading  ambitions  of  municipali- 
ties, to  demonstrate  to  the  public  the  value  of 
those  extensive  interurban  systems  which  electric 
traction  had  rendered  possible.  The  efforts  of 
private  capital  toward  this  end  were  directed 
through  two  channels.  In  the  first  place,  old  tram- 
way undertakings  (those  approaching  the  end  of 
their  tenure)  were  acquired  in  the  hope,  or  the 
promise,  that  the  local  authorities  concerned  would 
defer  purchase  until  the  end  of  a  certain  period, 
or  grant  a  lease  to  the  company.  In  the  second 
place,  extensions  were  promoted  as  links  in  a  com- 
prehensive system.  In  both  these  operations  pri- 
vate enterprise  was  materially  assisted  by  the 
operation  of  the  light  railways  act  of  1886,  though 
it  introduced  railway  as  well  as  municipal  opposi- 

245 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

tion  to  the  extension  of  interurban  systems.  It 
will,  therefore,  be  clearly  observed  that  private 
enterprise  in  English  street-railway  undertakings 
has  had  many  more  difficulties  to  contend  with 
than  in  America.  It  has  practically  been  kept  out 
of  the  rich  districts  by  the  cities  taking  over  the 
plants  for  a  song  at  the  end  of  short  leases,  while 
the  virgin  districts  in  England  which  are  worth 
anything  are  few  and  far  between.  Where  there 
is  a  virgin  district,  however,  and  a  company  en- 
ters it  first,  acquiring  the  best  routes,  they  have 
to  face  the  danger  of  the  municipality,  impatient 
at  the  company's  success,  and  entering  into  com- 
petition rather  than  waiting  until  the  expiry 
of  the  company's  franchise,  when  they  could  take 
over  the  system.  This  is  the  experience  of  the 
Oldham,  Ashton  and  Hyde  Electric  Tramways 
Company,  Limited,  which  was  formed  to  run  elec- 
tric street-railways  in  a  district  where  they  had 
not  before  been  laid.  The  various  municipal  au- 
thorities concerned  feared  to  avail  themselves 
of  their  powers  to  run  the  lines  themselves,  and 
hence  did  not  oppose  the  private  promotion.  It 
was  quite  a  speculation,  of  which  investors  fought 
shy,  and  the  company  conducted  the  system  on 
modest  lines  in  the  hope  that,  once  successfully 
established,  there  would  be  no  obstacle  to  its 
making  the  natural  extensions  to   that  system 

246 


THE  STREET  RA.ILWAY  TANGLE 

which  the  successful  management  of  the  existing 
lines  justified.  But  when  the  municipal  authori- 
ties found  that  the  company  had  made  a  moderate 
success  of  its  undertaking,  their  jealousy  was 
aroused,  and  instead  of  allowing  the  moderate 
extensions  the  company  contemplated,  several  of 
the  local  authorities  promoted  street-railways  of 
their  own,  choosing  routes  which  the  company 
avoided  as  not  promising  to  be  remunerative. 
They  have,  of  course,  failed  to  yield  a  profit.  On 
the  contrary,  they  are  a  burden  on  the  taxes.  So 
that  the  company  is  doubly  hit  by  the  failure  of 
the  municipal  tramways,  being  debarred  from  ex- 
tending its  system,  and  suffering  competition  from 
municipal  lines,  the  losses  from  which  it  has  to 
contribute  as  a  taxpayer.  In  fact,  the  municipal 
tramway  failure  in  the  district  has  meant  the  levy- 
ing of  a  tramway  tax  in  one  town  (Ashton)  of  Is. 
31/^d.  in  the  pound,  or  an  extra  13  per  cent,  on  the 
assessment,  and  in  another  town  (Hyde)  of  9d.  in 
the  pound,  or  an  extra  4i/^  per  cent,  on  the  assess- 
ment. 

This  is  a  case  of  municipalities  agreeing  to 
combine  to  thwart  the  success  of  a  company  which 
was  more  courageous  than  they  in  tapping  an 
undeveloped  district.  In  other  cases  private  en- 
terprise has  been  allowed  to  link  up  tramways 
in  areas  where  the  local  authorities  could  not 

247 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

agree  as  to  which  particular  local  authority 
should  manage  the  enterprise.  Each  local  au- 
thority had  to  be  separately  considered ;  its  opin- 
ions, its  prejudices,  and  its  ambitions  carefully 
studied.  Each  of  the  local  authorities,  it  should 
be  remembered,  had  the  power  to  veto  any  of  the 
schemes  of  the  tramways  company  for  the  re- 
newal of  tenure,  and  each  of  them  had  to  be  sep- 
arately persuaded  not  to  use  this  power.  The 
history  of  such  undertakings  in  England  illus- 
trate the  difficulties  involved  in  arranging  inter- 
communication facilities  between  neighboring  sys- 
tems owned  respectively  by  companies  and  local 
authorities.  The  municipal  systems  occupy,  for 
the  most  part,  the  areas  of  densely  populated 
towns;  and  their  owners  have  naturally  a  ten- 
dency to  regard  them  as  self-contained,  and, 
therefore,  superior  to  outlying  systems.  From 
the  present  state  of  municipal  opinion  with  re- 
gard to  private  enterprise,  it  seems  Utopian  to 
expect  the  initiative  of  better  things  from  local 
authorities  themselves.  The  necessity  for  free 
intercommunication  between  neighboring  tram- 
way systems  is  already  a  truism  among  electric- 
traction  companies;  but  local  authorities,  not  be- 
ing business  organizations,  do  not  treat  the  ques- 
tion on  the  same  broad  commercial  lines.  There 
seems  every  reason  to  anticipate  that  the  local 

248 


THE  STREET  RA.ILWAY  TANGLE 

authorities  will  not,  save  in  rare  cases,  be  readily 
induced  to  arrange  running  powers  with  tramway 
undertakings  touching  their  borders.  The  pub- 
lie  interest,  nevertheless,  demands  it,  and  points 
to  the  necessity  of  altering  the  state  of  the  law  in 
order  to  achieve  it.  When  two  neighboring  rail- 
way companies  do  not  agree  to  running  powers 
for  which  there  is  a  clear  public  necessity.  Parlia- 
ment can  enforce  mutual  working  arrangements. 
Now  that  extensive  tramway  systems  of  a  nature 
similar  in  character  to  railway  systems  are  being 
built  up,  common-sense  requires  that  Parliament, 
or  the  Board  of  Trade,  should  have  the  same 
power  to  force  intercommunication  where  various 
tramway  systems  are  contiguous. 

The  difficulty  of  effecting  anything  like  effici- 
ent intercommunication  arises  from  the  paro- 
chial spirit  which  municipalities  evince  in  their 
dealings  with  each  other,  perhaps  more  strongly 
than  in  their  relations  with  companies.  Next- 
door  neighbors  are  not  always  the  best  friends, 
and  municipalities  are,  in  this  respect,  very  hu- 
man. The  natural  pride  of  each  of  them  in  their 
municipal  achievements  has  an  obverse  in  the 
natural  jealousy  of  the  achievements  of  others. 
There  is  no  necessity  to  dwell  on  this  well-known 
aspect  of  municipal  life,  but  it  must,  at  least,  be 
referred  to,  in  order  to  explain  why  municipali- 

249 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

ties  have  not  done  much  to  develop  isolated  tram- 
way systems  into  interurban  networks.  The  old 
familiar  difficulties  of  getting  several  local  au- 
thorities to  work  harmoniously  togiether  in  a 
drainage  or  water  scheme  are  experienced  again 
in  connection  with  tramways.  They  are,  indeed,  ex- 
aggerated beyond  their  usual  intensity,  because 
questions  of  profit  on  municipal  outlay  are  in- 
volved in  mutual  enterprise.  In  this  matter  also 
local  authorities  are  conspicuously  human.  It  is 
thus  difficult  for  municipal  bodies,  whose  sympa- 
thies are  inevitably  directed  to  a  single  special 
area,  to  carry  on  enterprises  which,  to  be  properly 
conducted,  must  ignore  local  boundaries,  and  spread 
freely  in  all  directions.  They  show,  also,  how  little 
in  the  way  of  interurban  tramway  development 
may  be  expected  to  arise  out  of  the  initiative  of  the 
local  authorities.  In  addition  to  this  criticism 
''by  results"  there  are  many  objections  to  be 
urged,  on  the  grounds  of  inexpediency  and  of 
principle,  to  any  local  authority  carrying  on  trad- 
ing operations  in  the  areas  of  neighboring  au- 
thorities—as must  be  done  if  municipalities  are 
to  become  promoters  of  comprehensive  systems 
of  electric  lines.  Whether  the  rate-payers  of  A. 
should  be  taxed  to  provide  tramways  for  B.,  and 
whether  the  pennies  paid  by  the  public  to  B. 
should  be  applied  to  relieve  the  rates  of  A.— such 

250 


THE  STREET  RAILWAY  TANGLE 

are  the  questions  opened  to  ns  as  soon  as  a  local 
authority  trades  beyond  its  border.  And  all  the 
arguments  against  municipal  speculation  within 
the  limits  of  each  area  become  emphasized  when 
the  area  is  overstepped.  Experience  seems  to 
indicate  very  clearly  in  the  majority  of  cases  that 
the  municipal  control  of  a  tramway  system  is 
an  obstacle  to  its  development  and  to  its  becom- 
ing a  part  of  an  extensive  interurban  system. 
In  London,  to  go  no  further,  the  municipal 
tramways  only  run  to  its  borders,  whilst  those 
of  private  systems  continue,  though  changing  is 
essential.  How,  with  such  restrictions  as  these, 
and  such  local  interferences,  we  could  have  es- 
tablished the  great  interurban  street-railway  sys- 
tems centering  in  Boston,  Chicago,  Detroit,  Pitts- 
burg, and  Cleveland,  to  say  nothing  of  New  York 
and  Philadelphia,  and  a  dozen  other  cities  which 
will  at  once  suggest  themselves,  I  do  not  know. 
Could  anything  but  private  enterprise  have  linked 
Minneapolis  and  St.  Paul?  I  think  this  phase 
of  Municipal  Ownership  deserves  special  atten- 
tion, for  herein  it  shows  one  of  its  greatest  weak- 
nesses. Even  Mr.  Bernard  Shaw  acknowledges 
that  the  taxpayer  has  a  real  grievance  as  things 
now  stand.  **If  he  tries,"  says  Mr.  Shaw,*  ''to 
establish    electric    tramways    from    county    to 

*  * '  The  Common-Sense  of  Municipal  Trading, ' '  chapter  vii. 

251 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

county,  or  to  reduce  the  cost  of  electric  power 
(still  ridiculously  expensive  in  its  application  to 
domestic  heating,  for  example)  by  making  the 
generating  center  supply  a  whole  province,  he 
can  do  so  only  through  the  local  authority  or 
through  a  commercial  joint-stock  company.  If, 
for  the  sake  of  cheap  service  and  public  control, 
he  tries  the  local  authority,  he  finds  that  its 
power,  like  that  of  the  witch  who  cannot  cross 
running  water  stops  at  a  boundary  which  dates, 
probably,  from  the  Heptarchy.  If  he  submits  to 
the  prices  and  the  power  of  the  joint-stock  com- 
pany, he  finds  that  the  local  authority  vetoes  the 
tramway,  or  has  a  virtual  monopoly  of  power  dis- 
tribution within  its  own  area.  So  it  ends  in  his 
going  without." 

The  instrument  the  municipalities  possess,  by 
the  exercise  of  which  they  show  their  jealousy 
of  one  another,  is  the  same  as  that  which  they 
use  against  the  private  promoters— their  power 
of  vetoing  tramway  schemes  within  their  own 
area.  In  London,  where  the  local  authorities  and 
the  road  authorities,  for  the  purpose  of  the  tram- 
ways acts  of  1870,  are  not  identical,  there  is  a 
double  veto,  which  each  can  employ  against  the 
other,  and  both  can  employ  against  third  per- 
sons. Both  the  London  County  Council  and  the 
Metropolitan  borough  councils  have  used  their 

252 


THE  STEEET  EAILWAY  TANGLE 

veto  frequently.  The  corporation  of  the  city  of 
London  also  possesses  a  veto  and  has  invariably 
used  it  against  all  comers.  *'The  right  of  veto 
is  exercised  not  so  much  with  the  desire  to  destroy 
a  projected  enterprise,  but  rather  to  exact  the  ut- 
most conditions  which  a  promoter  will  accept 
sooner  than  abandon  the  project.  When  a 
scheme  is  proceeded  with  in  spite  of  these  exac- 
tions it  is  taken  as  evidence  that  the  conditions 
imposed  have  not  been  exacting  enough,  and 
whenever  the  operating  company  has  occasion 
subsequently  to  ask  the  local  authority  to  ap- 
prove anything,  the  company  is  expected  to  offer 
more  than  commensurate  consideration,  although 
the  object  for  which  the  approval  is  desired  may 
be  primarily  for  the  benefit  of  the  public.  All 
these  obstacles  imply  increased  capital  outlay  or 
increased  working  costs,  and  perhaps  both.  If, 
notwithstanding  these  conditions,  the  company 
earns  a  moderate  profit,  it  is  accused  of  striving 
only  after  dividends  to  the  prejudice  of  the  pub- 
lic. If  non-success  of  the  enterprise  follows,  then 
the  company  is  accused  of  being  overcapitalized 
and  mismanaged,  and  it  has  come  to  be  consid- 
ered an  impertinence  for  a  company  to  offer  ever 
so  mild  a  protest. ' '  ^     The  use  of  the  veto  has 

^  Mr.  E.  Garcke, ' '  London  Times  Engineering  Supplement, ' '  JxHj 
25,  1906. 

253 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

had  disastrous  effects  on  private  enterprise  in 
many  districts;  it  has  led  to  utter  stagnation  of 
personal  initiative.  Good  schemes  have  been 
barred  by  local  authorities  out  of  pure  caprice  or 
prejudice.  Other  schemes  have  been  allowed  to 
proceed  under  barely  tolerable  conditions ;  the  un- 
dertaking has  been  crippled  from  the  start  by  the 
high  price  municipalities  have  exacted  for  their 
consent.  Others,  again,  have  been  withdrawn  by 
the  promoter  because  it  was  found  impossible  to 
agree  to  the  extortionate  proposals  of  the  gov- 
erning bodies.  Some  expressions  of  opinion  on 
the  veto  may  be  quoted.  The  chairman  of  the 
Parliamentary  Committee  which  considered  a 
scheme  of  tramways  promoted  in  Scotland  said: 
''The  committee  desire  to  put  on  record  that  in 
their  opinion  the  original  scheme  was  a  good  one 
and  calculated  to  be  of  much  use  to  the  district: 
but  it  has  been  so  mutilated  and  loaded  with  con- 
ditions by  conflicting  interests  and  the  excessive 
demands  of  several  local  bodies  that  it  now  ap- 
pears to  the  committee  to  be  wholly  unworkable. '  * 
Mr.  Albert  Gray,  counsel  to  the  chairman  of  the 
Committee  of  the  House  of  Lords,  referring  to 
the  arrangements  made  by  promoters  to  overcome 
the  veto,  expressed  the  opinion  in  1900  that  the 
making  of  these  bargains  ''probably  must  lead 
to  corruption  in  some  form  or  other."    In  1902 

254 


THE  STREET  RAILWAY  TANGLE 

Mr.  Chaplin,  at  one  time  president  of  the  Lo- 
cal Government  Board,  stated  that  *'what  local 
authorities  would  describe  as  conditions  are  re- 
garded by  promoters— and  very  often,  no  doubt, 
with  good  reason— as  neither  more  nor  less  than 
blackmail.  This  has  been  the  subject  of  great  com- 
plaint for  years,  and  I  do  not  think  I  should  be 
going  too  far  if  I  said  that  on  several  occasions 
it  has  led  to  considerable  scandals."  The  Royal 
Commission  on  London  Traffic,  during  its  sittings 
in  1902-4,  heard  much  evidence  regarding  the 
abuse  of  the  veto,  to  the  general  effect  that  it  had 
been  used,  in  many  cases,  in  an  unreasonable 
manner,  with  mischievous  results,  and  without 
due  regard  to  the  interests  of  the  general  public. 
They  were  unable  to  ignore  the  subject  in  their 
report,  wherein  they  expressed  the  opinion  that 
''there  is  no  doubt  that  tramway  development 
has  been  seriously  checked  by  the  operation  of 
these  vetoes,  and,  although  it  is  not  suggested 
that  any  unworthy  use  has  been  made  of  them  in 
London,  it  is  clear  that  the  veto  is  sometimes 
exercised  without  due  regard  to  the  importance  of 
establishing  through  tramway  communication." 
They  came  to  the  conclusion  that  the  best  course 
was  to  abolish  the  veto  in  all  cases,  and  considered 
it  unreasonable  that  one  portion  of  a  district 
should  be  in  a  position  to  put  a  stop  to  the  con- 

255 


THE  DANGEKS  OF  MUNICIPAL  OWNERSHIP 

struction  of  a  general  system  of  tramways  re- 
quired for  the  public  benefit,  without  even  allow- 
ing the  case  to  be  presented  for  the  consideration 
of  Parliament. 

This  veto  and  their  powers  of  acquisition  and 
general  control  make  municipalities  masters  of 
the  situation  as  far  as  street-railways  are  con- 
cerned, and  having  succeeded  in  routing  private 
enterprise  in  this  direction,  they  were,  until  lately, 
disposed  to  rest  upon  their  oars  in  triumph  and 
self-congratulation.  The  vast,  elaborate  and  ex- 
pensive electrical  tramway  systems  they  had  con- 
structed were  ^Tieirs— unalterable,  municipal  insti- 
tutions. Tramways,  indeed,  from  the  point  of 
view  of  municipal  authorities,  were  the  last  thing 
in  street  locomotion.  Their  cars  were  a  per- 
manent, standardized  form  of  transit  by  which 
they  decreed  the  public  should  travel;  whilst  in 
return  for  the  privilege  of  being  injured  or  killed 
on  or  through  a  municipal  car,  the  public  are 
denied  the  same  liberty  to  take  legal  action  against 
municipal  authorities  that  they  have  against 
private  companies.^ 

^  The  Public  Authorities  Protection  Act,  passed  by  Parliament 
under  pressure  of  the  Association  of  Municipal  Corporations,  pro- 
hibits any  action  being  brought  against  a  municipality,  by  a  per- 
son, for  instance,  injured  on  a  borough  tramway,  more  than  six 
months  after  the  accident;  whereas  if  the  accident  happen  on  a 
company's  tramway,  the  injured  person  would  have  had  six  years 
in  which  to  sue.     Further,   an  unsuccessful  plaintiff  against   a 

256 


THE  STEEET  EAILWAY  TANGLE 

This  belief  in  the  immutability  of  municipal 
works  has  been  rudely  disturbed  by  the  ''hoot" 
of  the  motor-omnibus,  for  private  enterprise,  hide- 
bound by  the  municipalities  in  the  direction  of 
tramways,  has  availed  itself  of  their  development 
by  running  them  wherever  it  can.  These  useful 
vehicles  are  already  becoming  a  thorn  in  the 
side  of  local  authorities,  who  marshal  their  forces 
in  strong  opposition  when  the  railroads,  for  in- 
stance, ask  for  powers  to  introduce  motor-omni- 
buses in  connection  with  their  lines.  As  tram- 
way owners,  the  municipalities  want  a  complete 
monopoly  of  the  street-passenger  traffic,  fearing 
that  motor  traction  will  prejudicially  affect 
their  receipts.  When  the  Northeastern  Rail- 
way sought  and  obtained  authority  to  run 
motor-omnibuses  Parliament  was  asked  to  limit 
the  railway  company's  powers  by  providing  that 
if  the  vehicles  traversed  a  district  where  there 
were  tramways  owned  by  the  local  author- 
ities, the  railway  company  should  be  prohibited 
from  picking  up  intermediate  traffic.  This  at- 
tempt to  protect  municipal  enterprise  from  fair 

mimicipality  is  penalized  by  having  to  pay  to  the  municipality  a 
higher  scale  of  costs  than  those  awarded  between  private  parties. 
In  ordinary  litigation,  in  fact,  the  courts  have  a  certain  discre- 
tion to  withhold  costs  altogether.  There  are  other  special  provi- 
sions in  the  act  which  make  litigation  with  a  municipality  risky 
and  costly. 

"  267 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

competition  failed.  It  happens,  however,  that  in 
Glasgow  and  other  provincial  towns,  the  anom- 
alous position  exists  of  the  governing  authority 
having  the  power  to  license  such  vehicles,  per- 
mission to  run  which  they  can,  and  do,  refuse  if 
they  are  intended  to  ply  on  routc^  served  by  the 
governing  authority's  tramways.  The  position 
of  the  London  County  Council,  in  being  at  one 
and  the  same  time  an  administrative  and  a  trad- 
ing body,  with,  most  unfairly,  powers  over  per- 
sons who  are  their  competitors  in  such  trading,  is 
particularly  anomalous.  For  instance,  under  the 
provisions  of  the  public  health  (animals)  act, 
they  can  close  the  stables  of  their  competitors, 
the  omnibus  owners.  Under  the  buildings  act, 
they  can  prevent  their  competitors  putting  up  the 
buildings  they  require,  or  harass  them  in  their 
requirements.  Under  the  motor  act,  the  Council 
can  lay  down  the  speed  at  which  their  competitors 
may  run  their  vehicles,  and  they  can  regulate  the 
speed  in  the  interest  of  their  own  electric  trams, 
rather  than  in  the  interests  of  the  general  public 
or  of  motorists.  The  principle  is  an  important 
one,  for  it  raises  the  question  how  far  a  local  au- 
thority can  bar  the  running  of  vehicles  which  may 
be  proved  to  be  necessary  in  the  public  interest, 
because  they  would  compete  with  a  municipally- 
run  tramway  system.    One  municipality  (Croy- 

258 


THE  STREET  RAILWAY  TANGLE 

don)  however,  for  its  own  purpose,  wanted  to  run 
motor-cars;  but  in  their  seeking  power  to  do  so, 
it  transpired  that  the  cars  were  to  be  run  over  a 
number  of  routes  along  which  a  private  company 
had  obtained  power  to  construct  tramways.  This 
revealed  their  object  to  be  to  steal  a  march  on  the 
company,  and  it  did  not  succeed ;  the  parliamentary 
committee  regarded  the  scheme  to  be  an  ill-con- 
sidered one  and  rejected  it.  But  other  munici- 
palities have  since  succeeded  where  Croydon 
failed,  for  being  unable  to  set  back  the  popularity 
of  the  motor-omnibus  by  opposing  their  running, 
a  number  of  them  have  been  busy  of  late  in  ob- 
taining powers  to  run  them  in  connection  with 
their  tramways,  following  the  usual  municipal 
policy  of  baulking  private  individuals  of  reaping 
any  benefit  from  their  initiative  in  promoting  new 
forms  of  enterprise.  In  a  year  or  two,  no  doubt, 
there  will  be  as  many  motor-omnibuses  running, 
both  municipal  and  private,  as  there  are  tram- 
cars.  Then  will  arise  the  question  as  to  how  far 
the  enormous  cost  of  municipal  tramway  equip- 
ment is  likely  to  prove  vain  through  the  lack  of 
foresight  displayed  by  the  municipalities  in  build- 
ing great  tramway  systems  as  though  for  all  time, 
when  no  sooner  have  they  attained  a  certain  stage 
of  efficiency  in  working  than  their  further  success 
is  menaced  by  the  running  of  a  powerful  new 

259 


THE  DANGEE8  OF  MUNICIPAL  OWNEESHIP 

competitor  for  public  favor  which  may,  in  the 
end,  reduce  them  to  obsolescence.  Perhaps,  after 
all,  private  enterprise  has  to  be  congratulated  on 
the  cupidity  of  the  municipalities  in  taking  over 
their  street-railway  systems. 


260 


CHAPTER  Xm 

THE  STKANGLING  OF  THE  ELECTRICAL  INDUSTRY 

Municipal  control  of  electric  lighting  acquired  by  legislation  based 
on  Tramway  Act,  with  similar  results  .  .  .  Electricity  as  a 
menace  to  Municipal  gas  monopoly  ,  .  .  Municipal  electricity  in 
turn  threatened  by  improvements  in  gas  lighting  .  .  .  Observa- 
tions showing  inexpediency  of  both  utilities  being  in  Municipal 
hands  .  .  .  The  throttling  of  the  industry  upon  the  passing  of 
the  Electric  Light  Act  of  1882  .  .  .  Preferential  treatment  to 
municipalities  in  parliamentary  procedure  relating  to  applica- 
tions for  franchises  .  .  .  Private  enterprise  and  supply  of  elec- 
tricity in  bulk  over  wide  areas  .  .  .  Municipalities  fall  into  line 
in  organized  opposition  .  .  .  The  Newcastle  on  Tyne  Electric 
Light  Company  .  .  .  Unprofitable  municipal  electricity  works  un- 
salable .  .  .  Cheap  supply  by  private  power  companies  .  .  . 
Inability  of  local  authorities  to  compete  with  same  .  .  .  The 
electrical  position  in  London  .  .  .  County  Council's  onslaught 
on  private  biUs  .  .  .  Prof.  Sylvanus  Thompson's  comments 
thereon  .  .  .  Inadequacy  of  power  supply  in  London  as  com- 
pared with  demand  .  .  .  Parliamentary  Committee's  rejection 
of  the  County  CouncU  bill  .  .  .  Council  declared  the  proper 
authority  for  electric  supply,  but  to  propose  better  scheme  and 
admonished  to  properly  fulfil  their  functions,  or  submit  to  entry 
of  private  enterprise. 

THE  municipal  attitude  toward  motor-omni- 
buses as  rivals  to  their  tramways,  first  hold- 
ing them  in  light  esteem,  then  antagonistic  to 
their  progress,  then  grudgingly  recognizing  their 
importance,  and  finally  making  haste  to  acquire 
power  to  run  them  themselves  only  when  private 
traders  had  proved  their  worth,  is  similar  to  that 

261 


THE  DANGEKS  OP  MUNICIPAL  OWNEESHIP 

which  they  showed  toward  electricity  in  relation 
to  their  gas  works.  Like  the  motor-omnibus, 
electricity,  when  it  came  on  the  scene  in  Great 
Britain,  threatened  to  supplant  utility  of  which 
they  held  a  monopoly.  There  was  no  doubt  about 
the  policy  to  be  pursued.  Electricity  must  either 
be  killed  or  captured.  But  electricity  proved  to 
be  a  force  which  was  not  to  be  crushed  out  by 
the  hostility  of  local  governing  bodies.  Its  cap- 
ture was  less  difficult.  Armed,  therefore,  with  the 
powers  obtained  by  the  electric  lighting  act  of  1882, 
the  municipalities  have  set  the  pace  to  its  develop- 
ment, and  a  very  slow  pace  it  has  been.  Put  in  a 
nut-shell,  the  municipalities  acquired  such  a  con- 
trol over  the  new  industry  that  a  district  was  en- 
tirely at  the  mercy  of  the  governing  authority 
as  to  whether  a  single  volt  of  current  should  be 
generated  within  its  area.  The  object,  naturally, 
was  the  protection  of  the  monopoly  of  their  gas- 
works, and  also  to  leave  the  field  open  for  the 
municipality  to  enjoy  a  similar  monopoly  of  the 
new  illuminant  if  they  chose.  By  virtue  of  the 
act  referred  to,  no  electric-lighting  company 
could  carry  on  business  in  any  locality  without 
the  sanction  of  the  municipality,  who  themselves 
had  the  option  of  obtaining  the  same  powers  by 
which  the  private  company  could  be  ousted;  or 
even  if  the  latter  were  allowed  to  exist,  the  mu- 

262 


THE  STEANGLESTG  OF  THE  ELECTEICAL  INDUSTEY 

nicipality  could  step  in  within  a  certain  period, 
after  the  private  company  had  proved  the  utility 
of  their  business,  and  expropriate  the  entire  con- 
cern at  its  bare  value.  By  such  powers  the  mu- 
nicipalities could  keep  private  enterprise  out  al- 
together, or  admit  it  under  onerous  restrictions. 
They  have  done  both.  But  after  electric  lighting 
had  become  quite  common  in  America,  it  dawned 
upon  the  councilors  that  their  gas  monopoly  could 
not  last  forever,  and  that  either  they  must  adopt 
electricity  themselves,  or  let  in  the  private  com- 
panies, who  had  been  offering  to  do  the  business 
for  years  past,  on  reasonable  terms.  Accord- 
ingly there  came  a  municipal  boom  in  electric 
light,  and  members  of  the  municipalities  made 
many  boastful  speeches  glorifying  their  progress- 
ive spirit  and  their  devotion  to  public  needs,  so 
that  the  actual  truth,  namely,  that  their  foolish 
obstruction  had  kept  English  towns  far  behind 
those  of  America  and  Europe,  was  lost  sight  of  by 
most  people.  However,  at  that  time  it  was  gen- 
erally accepted  as  gospel  by  alderman  and  coun- 
cilors who  ''discovered"  electricity,  and  who  pat- 
ronized the  helpless  foundling,  that  they  had 
really  secured  a  magnificent ' '  asset ' '  for  the  rate- 
payers in  the  shape  of  a  monopoly  of  electric  light- 
ing, a  business  that  would  grow  and  prosper.  But 
having  gone  thus  far  with  the  new  illuminant,  it 

263 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

has  turned  out  that  many  towns  would  have  cheer- 
fully left  electric  lighting  to  private  syndicates 
if  their  governors  had  known  what  a  fierce  com- 
petitor the  cheap  English  gas  was  going  to  be 
when  the  introduction  of  the  Welsbach  incandes- 
cent burner  and  mantle  came  about.  Hence  to- 
day both  municipal  and  company  gas  have  proved 
the  more  lucrative,  and  many  municipal  electric- 
ity works  are  suffering  as  much  from  the  success- 
ful rivalry  of  gas  as  from  their  bad  management. 
It  is,  however,  a  wholly  optional  form  of  compe- 
tition, since— in  towns  where  gas  and  electricity 
are  in  municipal  hands— the  same  agency  which 
pulls  the  strings  of  the  one  pulls  the  strings  of 
the  other.  The  efficiency  of  either  can  be  added 
to  or  lowered  as  the  wisdom  of  the  municipality 
dictates,  so  that  gas  may  easily  be  made  to  show 
a  profit  by  the  simple  expedient  of  not  supplying 
a  satisfactory  electric  light  or  raising  the  price, 
whereupon  consumers  turn  back  to  the  illuminant 
they  abandoned.  The  policy  of  starving  one  un- 
dertaking at  the  expense  of  another  is  followed 
in  Prussia.  There  both  the  railways  and  canals, 
competitors  for  goods  traffic,  are  in  the  hands  of 
the  State,  and  the  former  are  kept  at  a  compara- 
tively low  efficiency,  whilst  the  canals  are  afforded 
a  preferential  treatment  by  superior  equipment 
and  low  rates,  which  enable  their  competition  to 

264 


THE  STRANGLING  OF  THE  ELECTRICAL  INDUSTRY 

be  felt  by  the  railways.  It  is  true  that  two  under- 
takings offering  similar  service,  though  with  a 
different  method  or  article,  may  be  profitable, 
even  if  both  were  municipally  managed,  but  the 
temptation  to  juggle  with  one  or  the  other  is 
ever  present.  From  this  point  of  view,  in  towns 
where  municipalities  own  gas-works,  and  where 
the  electric  lighting  is  managed  by  private  en- 
terprise, the  latter  solely,  and  not  the  taxpayer, 
would  be  the  losers  if  gas  has  a  greater  vogue; 
on  this  ground  alone,  therefore,  both  utilities 
ought  not  to  be  in  municipal  hands.  There  is 
another  reason  why  electricity  works  should  be 
confined  to  private  operation;  though,  as  time 
goes  on,  and  the  use  of  electricity  becomes  more 
general,  this  may  lose  force.  Can  electricity  be 
termed  a  public  utility?  In  England  it  is  at  least 
disputable  whether  it  can  be  so  classified  as 
yet.  Most  people  there  use  gas,  and  it  may  be  con- 
ceded, for  the  purpose  of  argument,  that  on  that 
ground  gas  is  a  general  utility  and  should  be  in 
municipal  hands ;  but  nothing  like  the  same  use  is 
made  of  electric  lighting,  and  for  the  municipal 
control  of  the  latter,  therefore,  the  same  argu- 
ment cannot  be  maintained.  Really,  municipal 
electricity  works  merely  provide  a  convenience 
to  a  fraction  of  the  population.  Thus  Battersea, 
with  a  population  of  174,800.  supplies  electric 

265 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

light,  on  which  nearly  a  million  dollars  have  been 
spent,  to  just  about  230  people.  Therefore,  nearly 
the  whole  of  the  taxpayers  of  this  district  get  no 
enjoyment  for  the  expenditure  they  have  con- 
tributed to  the  electricity  works.  Fulham,  an- 
other London  district,  with  a  population  of  156,- 
000,  has  a  municipal  electric  installation,  which 
cost  the  ratepayers  $1,300,000,  and  there  are  only 
1,792  consumers.  In  cases  where  electric  light- 
ing shows  a  profit,  and  the  surplus  is  applied  to 
the  relief  of  the  taxes  the  few  are  really  contribut- 
ing to  the  reduction  of  the  rates  of  those  who  use 
gas,  and  who,  therefore,  have  had  no  share  in  pro- 
moting the  success  of  the  electricity  works.  Thus 
a  question  arises  as  to  the  fairness  of  this,  unless 
a  profit  can  be  extracted  from  the  gas  undertak- 
ing, to  be  similarly  applied. 

Without  entering  into  the  question  of  the  rela- 
tive merits  of  gas  and  electricity  for  lighting  pur- 
poses, there  is  no  doubt  that  the  former  main- 
tains a  very  strong  position,  through  the  improved 
burners  invented  of  late  years,  added  to  prior 
establishment,  and,  consequently,  fidelity  of  the 
public  to  an  illuminant  to  which  they  have  for  so 
long  been  used.  Gas  ousted  the  candle  and  the 
lamp,  though  not  wholly,  but  electricity  has  not 
materially  affected  the  use  of  gas.  On  the  sur- 
face, it  would  seem  that  it  has  failed  on  its  mer- 

266 


THE  STEANGLING  OF  THE  ELECTEICAL  INDUSTRY 

its  as  an  illuminant :  but  I  have  already  pointed 
out  the  true  reason  for  the  backwardness  of  elec- 
tricity in  obtaining  general  favor— that  it  was 
no  sooner  ushered  into  existence  as  a  practical 
commercial  industry  than  the  shadow  of  the  mu- 
nicipalities fell  across  it,  and  has  dogged  its  de- 
velopment ever  since.  The  rapid  growth  the  in- 
dustry would  have  had  was  indicated  by  the  readi- 
ness with  which  capital  was  volunteered  at  its 
birth,  ere  repressive  legislation  intervened.  Dur- 
ing 1881  to  1883  electricity  supply  corporations, 
with  a  total  capital  of  $80,000,000,  were  reg- 
istered, as  against  a  sum  of  under  $4,000,000  be- 
fore 1881.  With  the  passing  of  the  Electric  Light- 
ing Act  of  1882,  this  outburst  of  activity  was 
abruptly  and  entirely  throttled,  so  that  during  the 
years  1884-6,  the  capital  invested  in  the  industry 
fell  to  the  figure  at  which  it  stood  before  1881. 
As  soon  as  the  effect  was  understood  of  the  short 
tenure  for  which  a  company  could  retain  posses- 
sion of  its  undertaking,  at  the  expiry  of  which 
the  local  authority  could  step  in  and  acquire  the 
concern  at  its  bare  value,  private  promoters  gen- 
erally declined  to  incur  the  overwhelming  risks 
which  the  carrying  on  of  the  undertaking  en- 
tailed. Franchises  obtained  in  1883  were  practi- 
cally abandoned  and  subsequently  cancelled,  and 
the  corporations  which  secured  them  were  amal- 

267 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

gamated  or  wound  up.  Hence  in  a  very  short 
time  the  act  that  was  intended  to  ''facilitate"  the 
supply  of  electric  light  effected  an  entirely  con- 
trary purpose,  for  it  succeeded  in  extinguishing 
the  industry  for  gome  years.  Some  relief  to  the 
onerous  conditions  was  obtained  in  1888,  when 
an  act  was  passed  which  doubled  the  period  of 
tenure  from  twenty-one  years  to  forty-two  years 
—a  vital  change  which  raised  electric  lighting 
from  the  slough  of  decrepitude  to  the  plane  of 
practicable  enterprise.  The  terms  of  expropria- 
tion by  the  municipalities,  however,  were  not  ma- 
terially changed  by  this  amending  act;  but  the 
longer  life  it  secured  to  a  private  corporation, 
by  which  municipal  annexation  was  warded  off 
to  a  period  which  gave  the  concern  a  chance  to 
prosper  and  allow  its  management  some  reward 
for  their  labor,  stimulated  a  revival  in  the  elec- 
trical industry.  In  other  respects,  however,  the 
local  authorities  were  able  to  retain  their  hold 
over  the  industry.  The  latest  date,  for  instance, 
on  which  a  private  corporation  can  give  notice  to 
the  local  authority  to  apply  to  Parliament  for  a 
provisional  order  (or  a  franchise)  is  July  1,  whilst 
the  local  authority  has  until  the  November  fol- 
lowing, a  period  of  five  months,  in  which  to  apply 
for  a  similar  order.  They  may  and  do  refuse 
consent  to  the  private  company  applying  if  they 

268 


THE  8TKANGLING  OF  THE  ELECTEICAL  INDUSTEY 

fail  to  wring  from  the  company  sufficiently  strin- 
gent terms.  They  may  and  do  apply  for  a  provi- 
sional order  themselves— and  not  act  upon  it.  No 
less  than  342  orders  were  obtained  by  local  au- 
thorities between  1888  and  1900,  against  only  123 
taken  out  by  companies.  The  latter  were  acted 
upon  at  once:  many  of  the  former  were  not,  and 
remained  unused  beyond  the  two  years'  limit  set 
by  the  Board  of  Trade  for  the  commencement  of 
work.  Indeed,  several  orders  obtained  by  local 
authorities  in  1891  and  1892  had  not  been  put  in 
operation  in  1900.  The  outcome  of  this  dog-in- 
the-manger  policy  of  local  authorities,  in  neither 
providing  a  district  with  electric  lighting  them- 
selves, nor  letting  in  a  private  company  to  do  so, 
was  that  only  250  towns  had  any  electricity  supply 
available,  notwithstanding  that  there  are  over  700 
gas  undertakings  in  the  United  Kingdom. 

The  roping  in  of  the  British  electrical  industry 
is  neither  the  fault  of  the  scientists,  engineers, 
nor  capitalists,  but  ''wholly  and  solely  the  fault 
of  a  government  which,  like  all  British  govern- 
ments, but  unlike  all  foreign  ones  of  any  conse- 
quence, went  blundering  into  a  subject  which  it 
knew  only  as  a  text  for  uninformed  debate,  with- 
out consulting  men  who  really  knew,  and  without 
regarding  even  the  general  principles  of  commer- 
cial Drosperity.  .  .  .  Now,  as  then,  at  every  stage 

269 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

promoters  are  thwarted  by  Parliament,  by  mu- 
nicipalities, by  chaotic  survivals  from  legislation 
passed  before  electric  power  was  heard  of,  and 
by  an  equally  chaotic  overlapping  of  different 
jurisdiction. ' '  * 

Of  late  years,  private  enterprise  has  broken 
away  from  the  limited  field  presented  for  its  ac- 
tivities by  the  municipal  area,  within  which  the 
distribution  of  supply,  as  laid  down  by  the  elec- 
tric lighting  acts,  is  confined,  and  wherein  the 
power-house  must  be  situated.  The  advantage  of 
possessing  a  longer  life  before  a  municipality 
can  expropriate  cannot  be  fully  availed  of,  be- 
cause private  electricity  works  are  circumscribed 
in  their  development  by  the  limitations  of  that 
area.  The  output  and  the  nature  of  the  load  are 
alike  restricted.  There  is  no  scope  for  exten- 
sions. The  municipal  boundary  may  exact  that 
the  power-house  be  situated  where  the  cost  of 
land  is  high,  the  tax-levy  heavy  and  water  and 
coal  dear.  Many  power  stations  are  thus  situ- 
ated, especially  in  London,  where  one  supply  com- 
pany yielding  six  per  cent,  dividends  pays  25  per 
cent,  of  its  divisible  profits  in  municipal  taxes. 
Cribbed,  cabined,  and  confined  by  existing  gen- 
eral legislation,  the  energies  of  electrical  com- 
panies seemed  likely  to  be  curtailed  in  a  way 

1" London  Times,"  October  24,  1906. 

270 


THE  STRANGLING  OF  THE  ELECTEICAL  INDUSTEY 

which  would  permanently  retard  any  real  growth 
of  their  concerns.  But  the  demand  which  has 
risen  of  late  years  for  cheap  electric  power  by 
railways  and  tramways,  chemical,  textile,  and  en- 
gineering works,  shipyards,  docks  and  collieries, 
and  every  type  of  industry,  completely  changed 
their  outlook.  Schemes  were  evolved  for  estab- 
lishing huge  generating  stations  capable  of  sup- 
plying all  these  needs,  with  a  sphere  of  operations 
extending  over  counties  instead  of  single  dis- 
tricts or  towns.  Existing  legislation,  however, 
barred  such  enterprise,  and  fruitless  were  the  at- 
tempts to  induce  the  Government  to  amend  acts 
wholly  out  of  harmony  with  the  progress  of  elec- 
trical engineering,  so  that  development  could  pro- 
ceed on  these  lines.  Recourse  had  therefore  to 
be  had  to  special  legislation  by  private  promoters 
seeking  parliamentary  sanction  to  undertake  the 
manufacture  of  electric  power  in  bulk  for  distri- 
bution over  wide  areas.  The  municipalities 
speedily  awoke  to  the  fact  that  in  this  move  their 
common  enemy,  scorning  the  boundary  of  a  single 
local  authority  as  not  affording  it  sufficient 
breathing  space,  was  bent  upon  expanding  over 
the  areas  of  a  group  of  them.  The  first  of  these 
power  bills  was  promoted  in  1898,  and  contem- 
plated the  erection  of  a  large  generating  station 
in  the  Midlands,  from  which  an  area  of  about 

271 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

2,000  square  miles  would  be  supplied.  Power 
in  bulk  was  to  be  furnished  to  municipal  and  com- 
pany holders  of  electricity  franchises  who  would 
distribute  the  power  to  consumers,  whilst  sanc- 
tion was  asked  to  supply  current  direct  to  fac- 
tories and  other  power  users.  The  municipalities 
came  into  line  in  strongly  organized  opposition 
and  finally  crushed  the  proposal  through  the  mach- 
inations of  the  Association  of  Municipal  Cor- 
porations, an  organization  which  employs  the 
methods  of  the  trade-unions  to  gain  their  ends. 
Eventually,  however,  a  number  of  electric-power 
bills  succeeded  in  overcoming  the  antagonism 
leveled  at  them  by  the  municipalities;  but  their 
success  was  considerably  tempered  by  the  restric- 
tions placed  upon  the  operation  of  the  companies 
as  the  result  of  this  opposition.  Large  towns 
have  been  excluded  from  the  areas  of  the  com- 
panies' power  supply,  whilst  the  companies  are 
unable  to  supply  current  direct  to  a  power  con- 
sumer in  the  area  of  an  authorized  distributor 
(a  municipality)  without  the  consent  of  the  dis- 
tributors—which practically  means  that  a  large 
power  consumer  is  barred  from  having  dealings 
with  a  bulk  company  if  the  municipality  objects. 
On  precedents  thus  created  have  been  based  sub- 
sequent statutory  powers  granted  to  companies, 
so  that  "the  character  of  the  undertaking  organ- 

272 


THE  STRANGLING  OF  THE  ELECTRICAL  INDUSTRY 

ized  to  secure  a  general  distribution  of  cheap 
energy  for  industrial  purposes— as  well  as  an  all- 
round  reduction  in  the  cost  of  electricity  for  light- 
ing—has been  determined,  not  by  engineering  con- 
ditions, nor  the  interests  of  the  public,  but  by  the 
parochial  spirit  and  the  ambitions  of  local  authori- 
ties who  failed  to  take  a  broad  and  statesman- 
like view  of  the  movement."* 

Standing  alone  in  being  free  from  unfair 
municipal  interference  is  the  Newcastle-on-Tyne 
Electric  Light  Company,  the  pioneer  and  most 
successful  electric-power  undertaking  in  the 
United  Kingdom.  The  concentration  of  in- 
dustries round  about  Tyneside  in  part  accounts 
for  its  success,  the  company  having  within  its 
area  a  large  demand  for  cheap  power  in  bulk 
from  numerous  shipyards,  engineering  shops  and 
factories.  They  were  able  to  meet  this  demand  be- 
cause the  municipalities  concerned  recognized  that 
they  themselves,  in  the  exercise  of  their  electric- 
lighting  franchises,  could  only  provide  limited 
facilities  to  meet  manufacturing  requirements. 
It  might  be  submitted  that  a  huge  generating 
station  supplying  energy,  as  in  this  case,  over 
the  whole  area  of  the  Northumberland  coal-fields, 
and  embracing  the  territories  of  a  score  of  mu- 

*Mr.  E.  Garcke,  "London  Times  Enginaering  Supplement," 
May  2,  1906. 

18  273 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

nicipalities,  would  be  equally  successful  if  munici- 
pally operated.  This  would  only  be  a  tenable 
proposition  if  the  local  authorities  concerned 
were  capable  of  amicably  joining  hands  and 
undertaking  power  generation  on  a  scale  and 
magnitude  far  beyond  the  capacity  of  their  own 
single  power  plants.  As  has  been  clearly  shown 
in  the  chapter  on  street-railways,  the  parochial- 
ism and  petty  jealousies  of  local  authorities  stand 
in  the  way  of  any  such  cooperation. 

The  Newcastle  Power  Company  has  been  able 
to  manufacture  energy  in  bulk  so  economically 
that  its  average  selling  price  (1.03d.)  is  less  than 
the  cost  of  production  of  current  (1.22d.)  gen- 
erated by  the  Tynemouth  municipality,  half  of 
whose  output  is  used  for  the  municipal  tramways. 
The  comparison  is  submitted  to  show  the  eco- 
nomic advantage  of  obtaining  a  supply  in  bulk 
from  a  power  company.  It  also  casts  a  side-light 
upon  how  electrical  power  development  on  the 
Tyne  would  have  fared  had  all  the  other  local 
authorities  acquired  electric  lighting  franchises, 
and  operated  them  as  separate  undertakings. 
The  Tynemouth  municipality,  indeed,  recognized 
the  advantages  of  having  at  its  own  doors  facili- 
ties for  power  supply  superior  to  its  own,  and  is 
now  buying  energy  from  the  company  under  an 
arrangement  which  will  mean  a  saving  of  $10,000 

274 


THE  STRANGLING  OF  THE  ELECTEICAL  INDUSTEY 

a  year  to  the  taxpayers.  A  London  urban  au- 
thority in  a  similar  position  is  the  Willesden  Ur- 
ban District  Council,  which  disposed  altogether 
of  their  electric-light  station  to  the  North  Metro- 
politan Electric  Power  Supply  Company,  from 
whom  it  now  buys  power  in  bulk  at  a  much  lower 
price  than  the  municipal  power-house  could  gen- 
erate it. 

It  does  not  always  happen  that  a  private 
purchaser  is  at  hand  to  take  over  an  unprofitable 
municipal  plant.  Bath,  some  three  years  ago, 
offered  its  electric-lighting  undertaking  for  sale, 
after  losing  many  thousands  of  pounds  in  a  dis- 
astrous attempt  to  earn  profits  for  the  citizens. 
The  concern  was  then  in  such  a  bad  condition, 
and  the  expensive  plant  laid  down  so  depreciated 
in  value,  that  no  syndicate  or  individual  could  be 
prevailed  upon  to  make  an  offer  for  the  business 
as  a  going  concern,  which  the  council  could  ac- 
cept. As  a  compulsory  alternative,  a  large  sum 
of  money  was  borrowed  to  reconstruct  the  sys- 
tem. It  still  shows  an  annual  loss  on  working. 
This  year's  loss  was  $1,690.  No  provision  has 
been  made  for  depreciation  of  plant  or  mains,  and 
on  the  present  capital  expended  a  charge 
of  3  per  cent,  for  the  renewal  of  machinery 
and  mains  would,  it  is  pointed  out,  swell  the  loss 
to  over  $15,000  on  the  year.    Bath,  however,  has 

275 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

profited' by  her  failure  to  handle  her  electric-light- 
ing undertaking,  having  readily  granted  a  fran- 
chise of  her  street-railways  to  a  private  company, 
which  is  performing  good  public  service.  From 
the  more  moderate  sections  of  town  and  dis- 
trict councils  are  heard  now  and  again  demands 
for  the  sale  of  water-logged  municipal  undertak- 
ings to  private  enterprise  as  the  best  means  of 
getting  rid  of  a  bad  investment  of  public  money. 
It  might  almost  be  said  to  be  a  movement  on  the 
part  of  a  number  of  local  government  bodies  to 
try  and  use  private  enterprise  as  a  sort  of  hos- 
pital for  their  diseased  trading  undertakings. 
The  movement  would  have  been  much  more  pro- 
nounced but  for  two  checks  that  have  come  into 
operation.  One  is  the  trait  in  human  nature 
which  makes  all  but  strong  men  very  reluctant  to 
admit  having  made  a  mistake,  and  which  is  never 
more  marked,  perhaps,  than  in  a  local  politician, 
and  the  other  is  the  fact  that  negotiations  have, 
as  far  as  possible,  been  carried  on  in  secret,  so 
that  repentant  councilors  should  not  parade  their 
failure  in  the  light  of  day.  Only  occasionally  does 
it  leak  out,  from  the  offices  of  companies  and 
financiers  who  make  a  special  business  of  elec- 
trical concessions,  to  what  extent  many  town  coun- 
cils have  sought  to  shift  their  responsibilities. 
There  is  naturally  little  ardor  on  the  part  of  pri- 

27Q 


THE  STRANGLING  OF  THE  ELECTEICAL  INDUSTEY 

vate  enterprise  to  pay  fancy  prices  for  obsolete 
plants  laid  down  after  years  of  bad  management. 
As  I  have  already  shown,  in  Great  Britain  the  cap- 
italists are  now  more  attracted  toward  the  large 
electric-power  schemes  which  have  authority  to 
supply  energy  over  areas  of  hundreds  of  square 
miles  than  to  town-lighting  businesses  in  which 
the  municipalities  engage  under  the  delusion  that 
by  doing  so  the  last  word  on  electrical  progress 
has  been  uttered. 

The  readiness  with  which  manufacturers  in  the 
Newcastle  district  have  availed  themselves  of  a 
cheap  power  supply  in  bulk  from  a  company  con- 
clusively shows  that  when  private  enterprise  is 
afforded  the  opportunity  of  performing  *' supe- 
rior public  service"  it  is  fully  equal  to  it.  The 
enterprise  of  municipal  electricity  works,  which, 
figuratively  speaking,  so  far  confines  itself  to  sup- 
plying current  in  teaspoonfuls  at  a  much  higher 
price  than  power  companies  charge,  certainly 
makes  a  poor  showing  by  the  side  of  the  Newcastle 
company's  public  spirit.  **It  must  be  borne  in 
mind  that  in  order  to  obtain  consumers,  the  power 
companies  have  frequently  to  transmit  their 
power  several  miles,  involving  heavy  capital  out- 
lay on  cables,  and  an  appreciable  maintenance 
charge.  If  the  power  companies  can  afford  to 
supply  at  the  low  figure  of  between  i/^d.  and  %d. 

277 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

per  unit,  in  spite  of  the  distance  over  which  the 
power  has  to  be  transmitted,  surely  the  munici- 
palities, with  the  demand  for  energy  at  their  very 
door,  can  do  so  even  better.  What,  then,  is  the 
reason  that  municipalities  have  not  yet  been  in 
a  position  to  offer  the  low  rates  for  power  such 
as  the  power  companies  are  now  contracting  for? 
The  answer  seems  to  be  twofold:  (a)  They  have 
not  realized  the  possibilities  of  power  supply  on 
a  large  scale,  and  are  consequently  not  prepared 
for  it.  (b)  They  have  hitherto  hesitated  to  lay 
out  the  large  sums  of  money  required  for  ad- 
equately dealing  with  the  problem."^ 

There  is  no  doubt  that  many  industries,  great 
or  small,  throughout  the  country,  could  be  enor- 
mously facilitated  if  electric  power  could  be  ' '  laid 
on"  to  them  in  the  same  way  as  gas  or  water. 
Many  a  trade  or  enterprise,  now  handicapped  by 
cost  of  motive  power,  would  receive  by  this  means 
a  greater  impetus  than  it  would  derive  in  any 
other  direction :  and  the  results  might  be  the  con- 
ferring of  a  substantial  boon,  not  alone  on  the 
persons  concerned,  but  on  the  country  at  large,  and 
especially  so  from  the  point  of  view  of  removing 
industries  from  urban  into  suburban  districts. 
Here,  again,  however,  the  socialist  idea  of  keeping 

*Mr.  William  Hodgson,  chairman  Salford  Municipality  Elec- 
tricity Committee. 

278 


THE  STRANGLING  OF  THE  ELECTRICAL  INDUSTRY 

alike  the  ** public  services"  and  the  means  of  re- 
munerative employment  in  the  hands  of  the  mu- 
nicipalities has  prevailed:  and,  while  economy 
would  suggest  that  electric  power  should  be  dis- 
tributed over  a  wide  area  from  a  common  center, 
the  general  tendency  of  local  governing  bodies 
has  been  either  zealously  to  acquire  powers  and 
then  not  use  them,  or  else  to  want  to  set  up  a  sep- 
arate and  distinct  plant  for  each  particular  dis- 
trict. Elsewhere  the  enterprise  of  the  private 
trader  has  been  restrained,  because  he  has  known 
that  as  soon  as  the  local  authorities  heard  of  his 
plan  they  would  probably  start  a  scheme  of  their 
own,  while,  even  if  they  did  not  want  to  do  so  at 
once,  there  could  be  no  certainty  as  to  their  future 
policy. 

As  far  as  London  is  concerned,  a  select  commit- 
tee of  the  House  of  Commons  ^  has  made  plain  the 
course  which  the  central  municipal  body  (the  Lon- 
don County  Council)  must  pursue  in  dealing  with 
the  question  of  the  supply  of  electric  power  in 
bulk.  The  struggle  between  private  enterprise 
and  municipal  traders  to  possess  the  London  area 
for  the  supply  of  electric  power  began  in  1905, 
when  the  bill  of  the  Administrative  County  of 
London  Electric  Power  Company,  round  which 
the  conflict  centered,  just  failed  to  pass  the  House 

^  On  the  London  County  Cotincil  (electric  supply)  bill,  1906. 

279 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

of  Conunons  at  the  formal  stage  of  third  reading 
after  having  bravely  survived  the  struggle 
through  committee.  It  was  the  victim  of  grand- 
motherly methods  of  procedure  only,  not  exclu- 
sively of  municipal  hostility,  for  the  promoters 
succeeded  in  overcoming  the  objections  of  quite 
a  number  of  London  local  authorities,  and  ob- 
tained agreements  with  them.  The  London  County 
Council,  however,  and  other  local  authorities, 
fought  tooth  and  nail  against  the  bill.  The 
prorogation  of  Parliament  nearing,  it  was  a  fight 
against  time  all  along  the  line,  and  the  opposition 
to  it  prevailed  only  to  the  extent  that  the  bill 
happened  to  emerge  victorious  from  the  squabbles 
with  which  it  was  beset  in  committee  just  as  the 
House  of  Commons  was  winding  up  the  session. 
No  less  a  sum  than  $750,000  was  said  by  those 
acquainted  with  the  inside  history  of  the  bill  to 
have  been  wasted  in  parliamentary  costs,  as  well 
as  an  enormous  amount  of  time.  This  gigantic 
scheme  for  providing  cheap  electric  power  to 
manufacturers  who  badly  need  it,  of  far-reaching 
importance  and  possibilities,  would  have  greatly 
stimulated  industry,  and  have  afforded  employ- 
ment to  large  numbers  of  men. 

At  the  time,  a  well-known  scientist.  Professor 
Sylvanus  Thompson,  in  a  letter  to  the  newspapers 
dealing   with    the    unscientific    and    uneconomic 

280 


THE  STEANGLING  OF  THE  ELECTRICAL  INDUSTRY 

arguments  urged  against  the  bill  by  the 
municipalities,  said,  ''It  is  something  truly 
pitiful  to  see  little  municipal  councils,  which 
could  not  possibly  supply  to  manufacturers 
in  their  area  electric  power  at  a  price 
below  a  penny  (two  cents)  per  unit,  offering 
parliamentary  opposition  to  a  great  industrial  en- 
terprise capable  of  doing  so.  London  municipal 
undertakings,  like  Hampstead  or  Lewisham,  can- 
not go  below  this  price  without  charging  extrava- 
gantly high  prices  to  the  ratepayers  for  their 
lighting,  or  else  making  a  loss.  Yet  they  oppose 
the  bill  that  would  benefit  the  consumers  in  their 
own  districts."  What  a  London  borough  council 
cannot  supply  at  two  cents  per  unit  he  showed  was 
being  supplied  at  considerably  less  on  the  Conti- 
nent and  in  the  United  States  and  Canada ;  whilst, 
* '  here  in  England  the  time  of  Parliament  has  been 
wasted  over  a  wretched  wrangle  whether  an  enter- 
prising body  of  industrial  persons,  the  chief  of 
whom  have  already  made  an  eminent  success  of 
the  electric-power  supply  in  Newcastle,  shall  be 
permitted  to  offer  to  the  London  borough  councils 
an  electric-power  supply  cheaper  than  they  them- 
selves can  make  it."  Professor  Thompson  went 
to  the  root  of  the  matter  in  saying  that  it  was  im- 
possible for  a  great  industrial  supply  of  elec- 
tricity for  power  purposes  to  be  carried  out— as 

281 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

it  must  be  carried  out  for  reasons  of  national 
prosperity— if  every  parish,  vestry,  borough  coun- 
cil, or  county  council  is  to  step  in  and  claim  the 
sole  right  of  electric  production  and  supply  within 
its  own  area.  The  creation  of  great  enterprises, 
Professor  Thompson  concluded,  was  a  matter  far 
too  important  for  the  industrial  world  to  be 
baulked  by  the  dog-in-the-manger  policy  of  bodies 
who  are  themselves  unable  to  create  that  which 
they  oppose. 

The  general  election  which  took  place  at  the  be- 
ginning of  1906  completiely  altered  the  political 
complexion  of  Parliament.  The  electorate  re- 
turned a  party  strongly  committed  to  socialistic 
and  municipal-ownership  legislation ;  hence  it  was 
plain  that  if  a  private  electric-power  bill  had 
failed  to  pass  the  old  House  of  Commons  by  acci- 
dent, it  would  receive  a  similar  fate  in  the  present 
one  by  design.  One  of  the  first  acts  of  the  new 
Parliament  was  to  reject  by  a  sweeping  majority 
a*  private  electric-power  bill  which  contemplateid 
supplying  power  in  bulk  in  the  London  area  at 
half  a  cent  (i/4d.)  per  unit  from  a  coal-field 
location  near  St.  Neots,  about  sixty  miles 
from  London.  The  defeat  of  this  bill  was  attribu- 
ted to  the  fact  that  the  promoters  would  not  con- 
sent to  its  being  considered  (unfairly  they  be- 
lieved)   by   a   hybrid   committee   formed   to   ex- 

282 


THE  STRANGLING  OF  THE  ELECTRICAL  INDUSTRY 

amine  all  power  bills  for  London.  Among  these 
bills  the  Administrative  County  of  London  Com- 
pany agreed  to  include  their  scheme.  But  in 
conflict  with  them  all  was  the  scheme  of  the  Lon- 
don County  Council,  who  had  been  rudely  awak- 
ened by  the  promotion  of  these  big  projects  into 
proposing  an  alternative  one.  The  discovery  that 
the  Metropolis  provided  a  wide  field  for  the  supply 
of  cheap  electric  power  in  bulk  by  private  enter- 
prise, similar  to  the  Tyneside  district  supplied  by 
the  Newcastle  company,  moved  the  London  County 
Council  to  the  decision  that  at  all  costs  the  Me- 
tropolis must  not  be  similarly  well  served.  In  the 
Metropolis,  with  a  population  of  six  millions,  the 
present  output  of  the  existing  electric  lighting  and 
supply  companies  is  253  million  units  per  annum, 
or  only  forty-two  units  per  head.  Compare  this 
with  New  York,  with  a  population  less  by  nearly 
half  (three  and  one  half  millions),  which  has  a 
total  output  of  971  million  units  per  annum,  or 
282  units  per  head  of  population.  The  require- 
ments of  London  for  electric  power  and  traction, 
apart  from  current  for  heating,  lighting,  and  for 
County  Council  tramways,  have  been  estimated 
at  1,800  million  units  per  annum,  which  necessi- 
tates the  installation  of  a  plant  that  can  deal  with 
a  maximum  load  of  430,000  kilowatts.  The  London 
County  Council,  in  the  scheme  they  proposed, 

283 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

contemplated  a  plant  with  a  capacity  of  only 
60,000  kilowatts.  Even  the  friendly  select  com- 
mittee, before  whom  the  bill  came  for  considera- 
tion, was  driven  to  the  conclusion  that  this  was 
a  most  inadequate  way  of  meeting  the  case,  and 
threw  out  the  bill.  Standing  alone,  this  failure 
of  the  Council  to  satisfy  Parliament  of  its  fitness 
to  provide  London  with  the  electric  power  it 
needs  might  be  deemed  an  accident.  But  it  came 
after  similar  fruitless  attempts  made  in  1905,  and 
also  in  1903  and  1902.  Whatever  may  be  the  poten- 
tial qualifications  of  the  London  County  Council  to 
take  on  its  shoulders  a  task  which  belongs  strictly 
to  engineering  science,  the  fact  that  it  does  not 
know  how  to  set  about  it  shows  conclusively  that 
the  question  is  quite  outside  its  domain.  The  se- 
lect committee,  however,  whose  members  reflected 
the  strong  municipal-trading  sympathies  of  the 
present  Parliament,  did  not  take  this  view.  It 
declared  that  the  authority  for  the  supply  of  elec- 
tric light  and  power  in  bulk  should  be  the  County 
Council. 

The  terms  of  the  committee's  report  at  least 
clear  the  air  as  to  the  part  the  municipalities  must 
take  in  this  pressmg  public  matter.  The  Council 
in  their  bill  only  sought  voluntary  powers  to  sup- 
ply electrical  energy,  which  they  could  carry  out 
or  not,  as  they  chose,  their  object  not  being  to 
render  "superior  public  service"  but  to  prevent 

284 


THE  STRANGLING  OF  THE  ELECTRICAL  INDUSTRY 

private  companies  coining  on  the  scene  ready  and 
willing  to  perform  that  duty.  The  committee 
said  that  the  power  of  the  Council  must  be  obli- 
gatory; it  would  not  agree  to  the  continued  pur- 
suit of  a  dog-in-the-manger  policy  which  merely 
meant  that  private  enterprise  was  prevented  from 
selling  a  commodity  to  the  full  extent  of  the  vast 
demand  for  it,  whilst  the  Council  only  contem- 
plated supplying  it  according  to  caprice,  in  drib- 
lets, or  not  at  all.  ' '  The  paramount  authority  you 
shall  be,"  the  committee  said  to  the  Council;  ''but 
you  must  properly  fulfil  your  functions.  The 
matter  is  too  important  to  be  trifled  with.  You 
must  bring  in  a  better  bill,  on  comprehensive  lines, 
and  perform  adequate  public  service.  If  you  do 
not,  private  enterprise  will  be  invited  to  propose 
an  alternative  scheme. '  *  The  ' '  Daily  Chronicle, ' ' 
an  avowed  Ownership  organ,  has  urged  the  Coun- 
cil to  act  at  once  on  the  advice  of  the  committee, 
*'as  this  will  be  their  last  chance."  But  this  jour- 
nal warns  the  Council  that  if  they  rely  on  their  own 
officers,  who  are  fully  occupied  with  their  daily 
duties,  to  prepare  what  will  be  the  largest  elec- 
tric-power scheme  in  the  world,  the  Council  will 
court  failure. 

Now,  apart  from  its  proved  incompetency  to 
take  up  such  an  undertaking,  the  Council  are  al- 
ready steeped  in  enormous  financial  commitments, 
owing,  amongst  other  things,  to  their  desire  to 

285 


THE  DANGEES  OP  MUNICIPAL  OWNERSHIP 

capture  the  tramway  systems  of  the  Metropolis 
and  the  boat  services  of  the  Thames.  They  are 
sufficiently  embarrassed  as  to  how  to  meet  these 
obligations.  Now  they  are  burdened  with  the  onus 
of  undertaking  a  vast  electric-supply  scheme,  and 
of  raising  money  three  or  four  times  the  amount 
they  intended  spending  on  the  project  they  failed 
to  get  sanctioned.  By  the  driving  force  of  a  Par- 
liament which  would  have  the  municipalities  em- 
bark on  trading  schemes  to  a  greater  length  than 
even  the  latter  are  prepared  to  go,  the  Council  are 
urged  to  commit  themselves  more  and  more.  If 
they  will  not  let  private  enterprise  perform  a  ' '  su- 
perior public  service, ' '  they  must  do  so  themselves. 
They  might  even,  the  Committee  suggested,  com- 
bine with  private  enterprise  for  the  purpose— the 
Council  providing  the  power  station  and  a  com- 
pany laying  the  cables  and  developing  the  under- 
taking on  a  leasing  arrangement.  This  is  an  en- 
tirely hopeless  proposition,  unless  the  Moderate 
party  of  the  Council  sweep  the  board  at  the  next 
elections,  as  they  did  at  the  borough  elections.  Up 
to  time  of  writing,  the  Council  have  only  nibbled  at 
the  question,  and  have  not  had  the  courage  to 
grasp  it  boldly  until  driven  to  do  so,  which  hardly 
promises  that  ''superior  public  service"  will  be 
performed  without  the  participation  of  private  en- 
terprise in  the  undertaking. 

286 


CHAPTEE  XIV 

FAILUBE  OF  TELEPHONES  UNDER  STATE  OB  MUNICIPAL 
MANAGEMENT 

Backward  condition  of  British  telephonic  communication  .  .  . 
Government's  fast  and  loose  policy  .  .  .  Telephone  declared  by 
courts  a  telegraph  and  as  such  a  State  monopoly  .  ,  .  Ee- 
stricted  development  of  National  Telephone  Co.  in  consequence 
.  .  .  Municipal  telephones  vetoed  by  Government  .  .  .  State  ac- 
quisition of  telephone  systems  in  1911  .  .  .  Municipalities'  ill- 
starred  ventures  .  .  .  Their  obsolete  and  unscientific  plant  .  .  . 
The  Municipal  systems  of  Tun  bridge  Wells,  Glasgow,  Brighton, 
Hull,  Swansea  and  Portsmouth  .  .  .  Unfavorable  outlook  for 
Government  telephones  in  view  of  failure  of  Government  tele- 
graphs .  .  .  Annual  deficits  of  latter  and  the  increasing  annual 
royalties  paid  by  telephone  company  to  State  .  .  .  British  post- 
oflfice  telephones  .  .  .  State  and  Municipal  telephones  in  other 
European  countries  •  .  .  Mr.  U.  N.  Bethell's  investigations  .  ,  . 
Unsatisfactory  State  systems  of  Belgium,  France,  Switzerland, 
and  Greece,  and  Municipal  systems  of  Holland  and  Amsterdam 
.  .  .  Efficient  Continental  telephones  where  privately  operated,  as 
in  Copenhagen,  Denmark  and  Stockholm,  Sweden  .  .  .  Telephone 
service  of  European  cities  compared  with  that  of  American 
cities  .  .  .  The  striking  development  of  telephones  in  the  United 
States  through  unhampered  private  initiative  .  .  .  London's 
need  of  similar  telephonic  communication. 

THE  backward  condition  of  the  telephone  indus- 
try of  England  has  been  a  hindrance  to  com- 
merce, a  source  of  annoyance  to  private  communi- 
cation, the  subject  of  investigation  by  Parliament, 
and  a  topic  of  endless  discussion  and  controversy 
by  those  interested  in  both  sides  of  the  problem 
of  Municipal  Ownership.  The  advocates  of  Mu- 
nicipal Trading  and  of  State  appropriation  of 

287 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

public  utilities  have  vociferously  maintained  that 
the  cause  of  this  lack  of  enterprise  may  be  traced 
to  the  fact  that  until  recent  years  the  telephone 
service  was  wholly  in  the  hands  of  a  private  com- 
pany. On  the  other  hand,  the  friends  of  the  com- 
pany declare,  with  equal  force  and  a  strong  array 
of  facts,  that  the  real  cause  of  the  trouble  comes 
from  the  unreasonable  interference  and  unjust  de- 
mands of  the  British  Government,  which  have 
made  it  impossible  for  private  capital  and  enter- 
prise to  push  ahead,  apply  the  latest  inventions, 
and  increase  the  service  by  reduction  of  price, 
and  extension  alike  of  public  and  private  ex- 
changes. A  glance  at  the  history  of  the  tele- 
phone in  England  strongly  indicates  that  the  Gov- 
ernment has  played  a  fast  and  loose  game  with 
those  who  have  undertaken  to  establish  it,  with 
the  result  that  its  progress  has  been  retarded,  be- 
cause the  company  never  knew  quite  where  it 
stood.  Oflficialdom  has  done  what  it  could  to  re- 
tard invention  and  stifle  enterprise.  But  as  soon 
as  the  telephone  became  finally  established  be- 
tween such  large  centers  of  population  as  Liver- 
pool and  Manchester,  and  began  to  make  inroads 
into  the  postal  telegraph  revenues,  the  Post-Of- 
fice Department  became  alarmed  and  intervened. 
It  was  decreed  subsequently  by  the  courts  that 
the  telephone  was  a  telegraph,  and  that  telephones 

28S 


STATE  AND  MUNICIPAL  TELEPHONES 

worked  for  public  benefit  came  under  the  tele- 
graph act  of  1869  and  that,  therefore,  the  Govern- 
ment had  a  monopoly  of  them. 

This  was  naturally  a  severe  blow  to  the  Na- 
tional Telephone  Company,  and  one  calculated 
seriously  to  impede  its  enterprise.  As  the  Gov- 
ernment of  the  day  was  not  prepared,  or  not  suf- 
ficiently sure  of  the  financial  success  of  the  tele- 
phone, to  take  it  over  bodily,  as  it  had  done  the 
telegraph,  it  licensed  the  National  Telephone 
Company  to  work  under  the  telegraph  act  at  a 
ten  per  cent,  royalty  on  the  gross  receipts.  The 
licenses  were  restricted  because  they  were  con- 
tingent upon  the  consent  of  local  authorities,  who 
could  place  obstacles  in  the  way,  and  prevent  the 
laying  of  wires,  and  otherwise  obstruct  the  sys- 
tem's installation.  For  some  years  the  telephone 
company  seemed  to  have  struggled  along,  having 
little  faith  in  the  final  outcome,  until  in  1892  the 
Government  came  to  a  general  arrangement  in 
reference  to  the  telephone  business  of  the  country. 
The  general  outline  of  the  arrangement  by  which 
the  British  Government  in  1892  took  over  part  of 
the  telephone  business  of  the  country,  was  that 
the  trunk  wires  which  connect  large  towns  should 
be  worked  by  the  postmaster-general,  and  that 
business  inside  towns,  which  in  England  is  gen- 
erally called  *  *  exchanged  business, ' '  should  be 

"  289 


THE  DANGEES  OP  MUNICIPAL  OWNERSHIP 

left  in  the  hands  of  the  company.  This  dual  ar- 
rangement had  its  disadvantages,  and,  as  those 
who  understand  the  business  will  realize,  its  in- 
conveniences;  but  the  telephone  company  could 
do  nothing  but  proceed  along  the  line  mapped  out 
by  the  Government.  Having  no  control  over  the 
entire  system,  and  being  more  or  less  hampered 
by  municipalities  in  the  laying  of  wires  and,  more- 
over, being  compelled  to  pay  a  large  royalty  to  the 
Government,  the  inducement  to  invest  additional 
capital  was  not  great.  The  Government  and  the 
company  seemed  to  have  worked  together  fairly 
well,  giving  an  indifferent  service  for  a  rather 
high  price,  until  the  municipal  traders,  looking 
around  for  new  fields  to  conquer,  took  the  matter 
up.  The  telegraph  act  of  1899  gave  the  munici- 
palities the  right  to  establish  and  work  local  sys- 
tems within  their  own  area  in  competition,  not 
with  the  Government  trunk  lines,  but  with  the 
telephone  company.  As  everybody  knows,  the 
telephone  service  is  not  one  which  lends  itself  to 
competition,  because  it  is  obviously  inconvenient 
for  a  telephone  subscriber  to  find  that  people  with 
whom  he  wishes  to  speak  are  not  on  his  system, 
but  on  another.  It  did  not  take  long  for  the  Gov- 
ernment to  discover  that  the  entrance  of  the  mu- 
nicipalities into  the  telephone  business  was  a  mis- 
take.   The  dual  arrangement  became  a  triple  one : 

290 


STATE  AND  MUNICIPAL  TELEPHONES 

there  were  three  agencies— Gdvernment,  munici- 
pal and  company— engaged  in  managing  a  public 
utility,  the  proper  and  efficient  service  of  which 
made  it  absolutely  necessary  that  it  should  be  cen- 
tralized and  be  conducted  by  a  single  administra- 
tion. Such  competition  only  made  confusion  worse 
confounded.  The  Government  awoke  to  the  fact 
that  the  municipalities  were  interfering  with  the 
exploitation  of  a  field  which  belonged  to  the*  State, 
the  telephone  having  been  declared  a  Government 
monopoly,  as  above  stated,  to  be  handed  over, 
lock,  stock,  and  barrel,  to  the  Post-Office  in 
1911.  The  agreement  made  with  the  National  Tel- 
ephone Company,  by  which  the  Government  will 
take  over  the  latter 's  system  in  that  year,  removed 
many  causes  of  differences  between  the  Govern- 
ment and  the  company,  who  now  work  more  in  uni- 
son; but  the  establishment  of  municipal  systems 
opened  out  the  prospect  to  the  Government  au- 
thorities that  in  place  of  private  competitors  they 
were  to  have  municipal  competitors.  The  actual 
position  was  not  a  serious  one;  it  rather  called 
for  consideration  in  view  of  what  it  threatened 
to  become.  In  fact,  only  thirteen  cities  availed 
themselves  of  the  act  of  1899  and  applied  for  tele- 
phone franchises ;  of  these  but  six  exercised  their 
franchises,  and  one  (Tunbridge  Wells)  early  sold 
out  to  the  company,  glad  to  be  relieved  of  the  ill- 

291 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

starred  venture.  Four  or  five  years'  experience 
of  municipal  telephones,  in  short,  proved  that  they 
would  never  succeed  as  competitors  either  of 
State  or  private  business,  but  only  as  an  obstacle 
to  telephone  progress.  In  1905  the  Post-Office 
decided  that  no  more  telephone  franchises  to  mu- 
nicipalities would  be  granted,  and  the  House  of 
Commons  confirmed  the  change  of  policy  by  a 
large  majority.  Mr.  John  Burns,  a  great  cham- 
pion of  the  municipalities,  said  in  that  chamber 
at  the  time  that  local  authorities  had  not  estab- 
lished their  claim  to  compete  with  the  company 
or  with  the  Post-Office,  or  with  both,  between  then 
and  1911.  Further,  he  regarded  telephones  as 
a  national  and  not  a  local  service.  The  five  mu- 
nicipalities—Brighton, Glasgow,  Hull,  Swansea, 
and  Portsmouth— have  all  along  the  line  been  un- 
able to  hold  their  own  with  the  National  Telephone 
Company,  and  in  several  places  have  conflicted 
with  the  Post-Office  services.  They  have  been 
unable  to  secure  their  fair  share  of  new  business 
which  offered  day  by  day.  The  systems  have  cost 
a  great  deal  more  than  the  original  estimates; 
much  of  the  plant  laid  down  is  of  an  inferior 
character ;  whilst  the  finances  of  all  the  municipal 
systems  are  in  about  as  unsound  a  condition  as 
they  can   be.     Mr.   Herbert   Laws   Webb^    has 

»" London  Times,"  Sept.  5,  1905. 

292 


STATE  AND  MUNICIPAL  TELEPHONES 

pointed  out  that  they  fixed  on  a  rate  for  a  single 
class  of  service,  regardless  of  the  fact  that  there 
are  various  classes  of  services,  regardless  of  en- 
gineering problems,  regardless  of  the  size  and 
character  of  the  area  to  be  covered,  regard- 
less of  the  development  to  be  aimed  at,  and  re- 
gardless of  the  hundred  and  one  conditions  that 
have  their  bearing  on  the  subject;  and  they  at- 
tempted to  subject  a  vast  and  complicated  in- 
dustry to  an  arbitrary  rule  arrived  at  by  pure 
guesswork.  It  is  no  wonder,  therefore,  that  the 
Government,  having  given  the  local  authorities 
their  opportunity,  should  have  cut  short  further 
fatuous  experiments  in  municipal  telephony  on 
finding  that  their  continuance  only  meant  conflict 
with  the  State  system,  and  public  inconvenience. 
The  wisdom  of  all  the  other  British  municipali- 
ties, who  preferred  to  leave  municipal  telephony 
alone,  is  plain  enough  from  the  foregoing.  Such 
abstention  may  well  count  for  righteousness  in 
view  of  the  fact  that  the  five  towns  which  were 
imprudently  caught  with  the  cry  of  ''municipal 
telephony ' '  have  been  nursing  weaklings  for  their 
pains.  The  towns  which  forebore  may  congratu- 
late themselves  on  having  one  folly  the  less. 

Tunbridge  Wells,  which  was  the  first  to  avail 
itself  of  the  provisions  of  the  act  of  1899  for  the 
establishment  of  municipal  telephony,  soon  re- 

293 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

pented  of  its  foolhardiness,  as  I  have  said,  and 
sold  the  undertaking  to  the  National  Telephone 
Company  in  1902.  The  capital  expenditure  on 
the  system  was  $140,000,  and  the  municipal  officials 
endeavored  to  show  that  the  first  year's  work- 
ing resulted  in  a  small  profit.  Though  the  ven- 
ture thus  appeared  to  be  self-supporting  (to  what 
extent  it  was  secretly  aided  by  the  taxes  did  not, 
of  course,  transpire),  Tunbridge  Wells  citizens 
quickly  showed  that  they  were  not  enamored  of 
the  enterprise,  especially  when  the  same  munici- 
pal officials,  in  a  later  report,  estimated  that  the 
undertaking  would  produce  a  future  annual  loss 
of  $95.  The  matter  was  made  an  issue  at  the 
election  of  1902,  when  several  supporters  of  the 
telephone  undertaking  were  defeated,  including 
the  chairman  of  the  telephone  committee.  The  re- 
sult was  that  the  proposal  to  sell  was  carried  at  a 
meeting  of  the  Council  by  nineteen  votes  to  eight. 
The  company  took  over  all  the  liabilities  of  the 
undertaking  and,  for  every  unlimited  service- 
subscriber,  it  pays  to  the  municipality  seventy- 
five  cents  annually,  which  may  produce  an  annual 
income  of  $500.  The  municipality  were  then  quit 
of  an  enterprise  they  were  unable  to  manage,  re- 
ceived back  every  cent  of  capital  expenditure  they 
incurred,  and  secured  a  small  revenue  from  the 
company  in  aid  of  taxation. 

294 


STATE  AND  MUNICIPAL  TELEPHONES 

Glasgow  obstinately  held  on  to  its  telephone  un- 
dertaking to  the  last;  but  the  local  council  finally 
agreed  to  sell  it  to  the  government— scorning  an 
offer  from  the  company  at  a  higher  price.  Ex- 
perts have  condemned  the  Glasgow  system  as  un- 
sound, financially  and  technically.  Established 
on  the  assumption  that  the  average  capital  cost 
per  subscriber's  line  would  be  something  less 
than  $95,  such  cost  has  turned  out  to  be 
over  $165,  or  nearly  double.  Its  compete- 
tive  force  may  be  judged  from  the  fact 
that  whilst  in  1904  the  additions  to  the  stations 
numbered  957,  of  which  more  than  600  were  ex- 
tension and  party-line  stations,  and  only  305  di- 
rect subscribers  and  public-telephone  lines,  the 
gain  made  by  the  National  Telephone  Company's 
Glasgow  system  amounted  to  over  6000  stations 
of  all  classes.  The  competition  of  the  municipal 
system  with  the  company  had  for  some  time  since 
come  to  a  standstill,  and  so  completely  was  it 
overshadowed  and  enveloped  by  the  system  of  its 
more  progressive  and  alert  rival  that  Glasgow 
citizens  began  to  look  upon  it  as  superfluous. 
Capital  expenditure  to  the  amount  of  $1,900,000 
was  spent  on  the  undertaking ;  according  to  the  es- 
timates it  ought  not  to  have  cost  more  than  $1,000,- 
000.  Gross  receipts  were  estimated  at  28  per 
cent,  of  the  capital  invested,  so  that  the  sum  spent 

295 


t HE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

'-  (^1,900,000)  should  have  produced  an  annual  gross 
revenue  of  over  $500,000.  In  1905  the  gross  reve- 
nue was  only  $277,130,  or  15  per  cent,  on  the  cap- 
ital. The  whole  scheme  therefore  wandered  from 
the  original  plan,  having  had  spent  on  it  $800,000 
more  in  capital  outlay  than  it  ought  to  have  had, 
and  yielding  in  revenue  $225,000  less  than  it  ought 
to  have  earned.  The  system,  which  was  really  a 
derelict,  has  been  secured  by  the  Government  for 
the  generous  price  of  $1,525,000;  so  that,  com- 
pared with  the  original  capital  outlay  ($1,900,- 
000),  brought  down  to  $1,450,000  by  payments 
to  sinking-fund,  and  a  contribution  out  of  the 
taxes,  the  capital  loss,  on  the  surface,  does 
not  appear  to  be  very  great.  To  sum  up,  it  has 
been  well  said  that  **  Glasgow  started  in  the 
telephone  business  with  the  confident  hope  of  ex- 
tinguishing the  service  of  the  National  Company, 
and  of  establishing  another  municipal  monopoly. 
It  is  a  bright  feather  in  the  cap  of  private  enter- 
prise that  a  great  and  wealthy  municipality,  with 
all  the  local  influence  that  a  big  trading  munici- 
pality possesses,  should  have  been  so  signally 
defeated  in  such  a  short  time.  That  the  Glasgow 
municipality  would  sell  their  telephone  system  if 
they  saw  the  least  hope  of  working  it  at  a  profit, 
or  of  maintaining  their  ground  in  the  competition, 
is  not  to  be  imagined  for  a  moment.     The  sale 

296 


STATE  AND  MUNICIPAL  TELEPHONES 

means  that  the  corporation  realize  that  the  posi- 
tion is  hopeless,  and  are  glad  of  the  opportunity  of 
retiring— without  the  honors  of  war. ' '  ^ 

Brighton's  experience  of  municipal  telephones 
is  similar  to  that  of  Glasgow.  It  has  been 
thoroughly  outpaced  by  the  National  Telephone 
Company,  whose  system  has  considerably  more 
than  double  the  number  of  telephone  stations 
served  by  the  municipal  undertaking.  The  lat- 
ter *s  small  circle  of  customers  had  steadily  begun 
to  diminish  when  the  Government  offered  to  take 
it  over,  so  that  there  was  nothing  left  but  to  fol- 
low the  lead  of  Glasgow,  and  sell  the  concern. 
The  capital  spent  on  the  undertaking  amounted 
at  the  close  to  $263,590.  The  purchase  price  at 
first  offered  by  the  Government  was  $206,000, 
based  on  expert  valuation  of  the  plant,  but  this 
was  forced  up  to  $245,000,  so  that  the  municipal- 
ity comes  out  of  the  transaction  little  the  worse. 
As  usual,  the  cost  of  laying  out  and  working  the 
undertaking  overshot  the  estimate.  In  the  latter, 
provision  was  made  for  2,080  subscribers  and  pub- 
lic-station lines  at  a  total  cost,  inclusive  of  600 
partially  completed  spare  lines,  of  $216,400.  But 
the  actual  capital  outlay,  as  stated,  was  $263,590, 
and  that  provided  only  1,514  subscribers  and  pub- 
lic lines.    Based  on  the  estimate,  the  municipal 

' "  » « « Electrical  Review, ' '  July  13,  1909. 

297 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

system  should  have  been  built  for  $185,000.  The 
system  also  failed  to  get  more  than  three-fourths 
of  the  estimated  number  of  subscribers  after  three 
years'  endeavor.  The  net  surplus  for  the  finan- 
cial year  to  March  31,  1905,  was  given  as  $2,065 : 
but  nothing  was  placed  to  depreciation.  Putting 
this  at  the  low  figure  of  2i/^  per  cent,  on  the  cap- 
ital sunk  in  the  undertaking  ($263,590),  there  ap- 
pears a  debit  item  of  $6,500  omitted,  which  swamps 
the  profit  and  leaves  a  deficit.  On  the  first  six 
months'  working  there  was  a  loss  of  $9,000.  A 
side-light  on  the  conduct  of  the  concern  was  shown 
at  a  local  government  inquiry  made  in  May  of 
1905  to  sanction  a  loan  of  $37,725  for  telephone 
extensions.  It  transpired  that  over  $25,000  of 
the  sum  had  already  been  spent.  This,  it  may  be 
remarked,  is  not  surprising,  as  it  is  not  unusual 
for  sanction  to  be  asked  of  the  local  government 
for  the  raising  of  loans  after  the  event.  The  sit- 
uation naturally  becomes  Gilbertian  if  it  happens 
that  the  government  inspector  refuses  to  allow  the 
borrowing  of  a  sum  of  money  that  has  already 
been  obtained  and  sunk  and  lost  in  some  water- 
logged concern.  It  is  true  the  evidence  put  before 
him  usually  reveals  the  state  of  affairs,  so  that 
the  procedure  of  sanctioning  becomes  a  solemn 
farce. 

Hull  started  telephones  in  January  of  1904,  and 
the  first  year's  working,  on  a  capital  expenditure 

298 


STATE  AND  MUNICIPAL  TELEPHONES 

of  $151,850,  yielded  a  deficit  of  $365.  A  renewal 
of  the  license  beyond  1911  was  refused  by  the 
postmaster-general,  who  suggested  consolidation 
with  the  National  Telephone  Company,  or,  as  an 
alternative,  an  offer  to  sell  the  telephone  service 
would  be  considered.  Like  Glasgow,  Hull  mu- 
nicipality will  not  hear  of  its  pet  telephone  sys- 
tem becoming  absorbed  by  the  company.  The  sec- 
ond year's  working  (1905-6)  produced  a  sum  of 
$14,315  after  expenses  had  been  deducted  from  re- 
ceipts. This  sum,  according  to  the  **  Eastern 
Morning  News ' '  of  May  2,  1906,  has  been  made  to 
appear  a  ** profit.'*  Interest  and  other  charges, 
however,  reduce  the ''profit  "to  $2,380,  and  if  from 
this  sum  the  deficit  on  the  previous  year  ($365) 
be  deducted,  the  balance  is  $2,015.  But,  as  in  the 
case  of  Brighton,  nothing  has  been  put  aside  for 
depreciation,  and  if  this  be  allowed  for  at  even 
214  per  cent,  on  the  present  capital  outlay— $225,- 
000—  (the  journal  named  puts  it  at  5  per  cent.) 
it  will  be  seen  how  misleading  is  the  bare  asser- 
tion that  a  profit  of  nearly  $15,000  was  made  on 
the  municipal  telephones. 

The  same  observations  may  be  applied  to  the 
"profits"  of  the  remaining  systems— Swansea 
and  Portsmouth.  In  the  case  of  the  latter,  the 
"Electrical  Eeview^  pointed  out  that  expert 
opinion  showed  that  as  much  as  10  per  cent,  should 

'Jane  29,  1906. 

299 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

be  written  off  for  depreciation ;  but  the  local  Coun- 
cil wrote  off  nothing.  The  sinking-fund  is  often 
made  a  substitute  for  depreciation,  and  Ports- 
mouth, during  the  four  years '  working  of  its  tele- 
phone system,  has  managed  to  place  $12,690  to 
that  fund,  or  just  under  5.7  per  cent,  on  the  total 
capital  outlay  of  $222,660.  '*An  alleged  profit," 
remarks  this  journal,  '4s  shown  for  the  year 
1905-6  of  $9,245:  but  if  depreciation  and  mainte- 
nance costs  were  properly  charged  and  interest 
and  sinking-fund  paid  on  the  full  capital,  the  pres- 
ent annual  loss  would  probably  work  out  at  be- 
tween $20,000  and  $25,000." 

The  due  disappearance  of  the  municipal  sys- 
tems, however,  does  not  improve  matters  for  the 
taxpayers,  when  it  is  remembered  that  the  State 
is  the  eventual  successor  to  the  whole  telephone 
system.  Centralization  of  management  will  cer- 
tainly be  effected  by  the  transfer,  and  so  the  con- 
trol of  the  telephones  will  not  be  further  impeded 
by  the  appearance  of  any  more  small  local  opposi- 
tion systems  with  their  connections  confined  within 
the  municipal  areas,  as  would  be  the  case  were  the 
company  continuing  its  existence.  Hence,  in  the 
circumstances.  Government  expropriation  is  the 
less  of  two  evils.  It  is  the  wind-up  of  along-pursued 
policy  of  vacillation  and  indecision  expressed  by 
all  manner  of  hindrances  placed  in  the  path  of 

300 


STATE  AND  MUNICIPAL  TELEPHONES 

the  company,  which  have  prevented  its  develop- 
ment and  full  efficiency.  But  the  action  at  least 
appears  to  have  been  precipitated  by  the  recog- 
nition that  if  company  operation,  obstructed  by 
State  interference,  was  bad  for  the  telephone  pub- 
lic, ineffective  municipal  opposition  to  the  com- 
pany, which  also  threatened  to  be  a  thorn  in  the 
side  of  the  State  when  it  became  telephone  owner, 
was  worse.  The  failure  of  municipal  telephones 
in  Great  Britain,  therefore,  appears  to  have  has- 
tened the  change,  and  the  company  will  be  extin- 
guished earlier  than  it  otherwise  would  be,  in 
order  that  the  blundering  municipal  telephone 
policy  should  come  to  an  end. 

Economically  considered,  however,  if  the  State 
control  of  the  telegraphs  be  taken  as  a  criterion, 
the  transfer  only  means  that  the  telephones,  in 
ceasing  to  be  a  possible  burden  on  municipal  taxa- 
tion, will  almost  certainly  become  a  burden  on 
imperial  taxation.  The  taxpayers  stand  to  gain 
nothing,  but  rather  to  lose  by  the  change.  Since 
the  State  took  over  the  telegraphs  in  Great  Brit- 
ain, extraordinary  annual  deficits  have  been  the 
rule,  and  are  on  the  increase.  To  the  greater 
popularity  of  the  telephones  has  been  ascribed 
much  of  this  loss;  hence  their  acquisition  would 
only  remove  the  competition  if  it  meant  limita- 
tion or  discontinuance  of  telephonic  communi- 

301 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

cation.  That,  of  course,  is  not  intended— rather, 
greater  efficiency  and  development,  to  the  extent 
to  which  a  forward  commercial  policy  is  a  prac- 
tical proposition  in  Government  hands.  But 
should  the  Government  concern  itself  about  seek- 
ing to  promote  the  telegraphs  to  a  profitable  un- 
dertaking, they  will  have  a  powerful  rival  in  their 
possession,  whose  operation  they  have  only  to 
curtail  and  weaken  in  order  that  greater  public 
use  should  be  made  of  the  telegraphs.  If  they 
give  both  systems  equal  play,  they  are  merely 
competing  with  themselves.  But  whether  they 
neglect  or  improve  the  telephone  service,  the  pros- 
pect is  that  Government  working  will  not  con- 
tribute as  profit  to  the  exchequer  anything  like 
the  amounts  corresponding  to  the  royalties  the 
telephone  company  annually  pay  to  the  State.  The 
losses  on  the  telegraphs  project  too  conspicuously 
for  them  not  to  be  closely  considered.  As  the  tele- 
phone has  been  legally  classified  with  the  tele- 
graph, and  is  therefore  a  Government  monopoly, 
the  figures  may  fairly  be  taken  as  indicating  that 
the  telephones,  under  State  control,  will  cease  to 
be  profitable.  When  the  telegraphs  were  taken 
over  from  the  companies  by  the  Government  in 
1870,  the  profit  in  that  year  on  company  working 
was  $1,692,500.  The  following  figures  show  what 
has  happened  since  (all  the  years  are  not  given, 
but  those  omitted  tell  the  same  story)  : 

302 


STATE  AND  MUNICIPAL  TELEPHONES 

ANNUAL    DEFICITS    ON    STATE    OPERATION    OF    THE    BRITISH 
TELEGRAPH  SYSTEM 

Percentage  of 
Expenditure 
Deficit  to  Gross  Re- 

ceipts. 

1883-4 $98,485  101.10% 

1884-5   181,850  102.03% 

1885-6   225,685  102.52% 

1886-7   627,185  107.70% 

1900-01    1,688*,205  109.76% 

1901-02    3,259,405  118.26% 

1902-03   3,008,555  116.16% 

1903-04   4,788,915  125.64% 

1904-05   5,955,630                125% 

In  contrast  to  these  figures,  it  is  profitable  to 
show  the  annual  contribution  which  the  telephone 
company  has  paid  into  the  State  coffers  by  way 
of  royalties.  Up  to  September  30,  1900,  the  total 
sum  so  paid  by  the  present  company  and  its  pre- 
decessors amounted  to  $5,407,450.  Since  1896, 
when  the  Government  took  over  the  trunk  lines, 
the  sums  paid  annually  have  expanded,  year  by 
year,  as  follows : 

ANNUAL  ROYALTIES  PAID  BY  TELEPHONE  COMPANY 
TO  THE  STATE 

1896 $396,330  1901 $732,890 

1897 446,190  1902 772,035 

1898 520,145  1903 841,240 

1899 615,305  1904 929,685 

1900 700,370  1905 1,030,275 

It  should  be  pointed  out  that  the  British  Post- 
303 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

Office,  in  addition  to  working  the  trunk  lines,  have 
already  gained  some  experience  in  the  operation 
of  urban  areas  by  the  establishment  of  a  govern- 
ment telephone  system  in  London  in  1902.  Each 
year  since  has  shown  a  deficit.  Here  is  the  result 
of  the  working  for  1904-5 : 

Balance,  after  deduct-  Estimated    deprecia- 

ing       expenditure  tion $283,235 

from  receipts,  avail-  Interest     on    capital 

able  toward  meet-  expenditure 288,900 

ing  depreciation, 
interest  on  capital, 
etc $466,490 

Estimated  deficit 105,645 


$572,135  $572,135 

Thus  whilst  the  taxpayers  benefited  in  1905  by 
the  contribution  of  $1,030,275  made  by  the  Na- 
tional Telephone  Company  to  the  exchequer,  they 
lost  $105,645  on  the  Government  service  in  Lon- 
don. It  is  fair  to  state,  however,  that  the  finan- 
cial year  1905-6  shows  a  balance,  after  meeting 
depreciation  and  interest.  This  is  the  first  time 
such  a  result  has  been  achieved,  but  as  the  reve- 
nue on  previous  years  has  been  insufficient  to  meet 
all  charges  on  the  service,  a  considerable  defici- 
ency remains  to  be  met  out  of  the  balances  in 
future  years.  But  the  surplus  of  1905-6  stands 
out  as  an  isolated  figure,  and  Government  working 

304 


STATE  AND  MUNICIPAL  TELEPHONES 

hardly  assures  that  future  years  will  yield  a  simi- 
lar result. 

One  has  only  to  glance  at  European  countries 
to  prove  the  soundness  of  the  proposition  that 
State  or  municipal  working  fails  as  applied  to 
telephones.  Mr.  U.  N.  Bethell,  in  a  paper  read 
at  the  National  Convention  upon  Municipal  Oper- 
ation and  Public  Franchises  which  met  at  the  New 
York  Reform  Club  in  1903,  submitted  ample  tes- 
timony to  support  the  contention.  In  Belgium, 
France,  Switzerland,  Germany,  Austria,  and 
Hungary,  he  tells  us,  the  central  government 
operates  the  industry.  In  Holland  the  State,  as  in 
Great  Britain,  operates  the  trunk  lines;  whilst 
in  the  two  principal  cities,  Amsterdam  and 
Rotterdam,  the  municipalities  operate  the  lo- 
cal systems.  In  Denmark  and  Norway,  pri- 
vate enterprise  under  government  control  op- 
erates the  industry.  In  Sweden  the  State  does 
so,  except  that  in  Stockholm  and  vicinity 
a  private  company  since  1890  has  been  in 
active  competition  with  the  State.  It  is  worth 
while  to  summarize  Mr.  Bethell 's  investigations. 
In  France,  the  telephone  is  mainly  confined  to 
Paris,  where  the  service  is  generally  inefficient 
and  the  plant  behind  the  times.  The  service 
outside  that  city  has  only  a  small  development. 
The  defects  of  the   French   system  are  purely 

20  305 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

governmental,  and  are  not  to  be  attributed  to  in- 
capacity on  the  part  of  the  technical  staff.  Po- 
litical influences  interfere  with  the  management, 
which  is  unable  to  enforce  discipline,  and  incom- 
petent operatives— who  would  not  be  tolerated 
under  private  operation— have  to  be  borne  with. 
The  accounts  are  not  published  separately,  so  that 
the  probable  losses  are  not  known. 

Belgium  has  not  succeeded  in  furnishing  an  effi- 
cient service  at  reasonable  rates.  As  in  France, 
the  discipline  is  extremely  lax,  and  the  service 
therefore  inferior.  Neither  Brussels  nor  Ant- 
werp is  sufficiently  served,  the  number  of  tele- 
phones in  the  first-named  city,  with  a  population 
of  560,000,  being  about  one  fifth  of  the  number  in 
Manhattan  and  the  Bronx  alone,  whilst  Antwerp, 
with  its  280,000  people,  had  only  3,666.  The  tele- 
phone accounts  are  not  disclosed  separately,  so 
that,  again  like  the  French  system,  how  the  in- 
dustry fares  financially  is  kept  dark.  "With 
such  small  systems  as  they  have  in  Brussels  and 
Antwerp, ' '  remarks  Mr.  Bethell, ' '  confined  in  each 
case  to  the  heart  of  the  city,  and  consequently 
operated  under  the  most  economical  condition, 
with  the  high  rates  they  obtain,  with  the  low  wages 
they  pay,  with  the  freedom  they  have  from  tax- 
ation, from  charges  for  rights  of  way,  and  for  the 
use  of  public  buildings,  it  would  seem  strange  in- 

306 


STATE  AND  MUNICIPAL  TELEPHONES 

deed  if  they  did  not  show  a  profit.  But  the  fail- 
ure to  meet  other  tests  is  sufficiently  striking  to 
make  the  question  of  profits  quite  immaterial/* 

Switzerland  shows  a  similar  experience.  The 
service  is  inferior,  antiquated  ground  circuits  are 
still  in  use,  and  the  wages  paid  to  all  classes  of  em- 
ployees are  extremely  low.  The  service  is  so 
little  used  by  the  public  generally  that  the  reve- 
nues fall  short  of  the  expenses  year  after  year, 
despite  cheap  labor  and  high  rates  to  subscribers. 
The  unfavorable  conditions  are  wholly  due  to  po- 
litical interferences.  Recommendations  urged  by 
the  technical  staff  are  ignored,  and  the  personal 
efficiency  of  the  latter  is  discouraged,  so  that  the 
adoption  of  ordinary  business  principles  is  impos- 
sible. According  to  the  *  *  Statesman 's  Year  Book ' ' 
for  1906,  the  deficit  in  1904  on  telegraphs  and  tele- 
phones amounted  to  $136,633. 

In  Holland,  the  State  has  allowed  the  munici- 
palities of  Amsterdam  and  Rotterdam  to  carry  on 
the  local  systems  under  a  limited  charter.  Though 
strongly  bound  together  by  social  and  commercial 
ties,  which  demand  coordination  and  uniformity 
of  the  methods  employed,  the  features  and  general 
conduct  of  the  telephone  business  in  the  two  places 
are  dissimilar.  The  failure  to  cooperate  in  the 
management  of  industries  where  local  needs  de- 
mand working  agreements  between  municipalities, 

307 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

such  as  those  operating  between  New  York  and 
neighboring  towns,  is  undoubtedly  a  fatal  objec- 
tion to  the  acceptance  of  the  public-ownership 
doctrine.  But  other  considerations  enter  beyond 
the  lack  of  harmony  which  municipalities  show  in 
their  dealings  with  one  another,  or  rather  in  keep- 
ing one  another  at  arm's  length.  Mr.  Bethell 
puts  the  case  succinctly.  '*To  be  efficient  and 
satisfactory  to  the  public  the  telephone  systems 
within  such  an  urban  center,  no  matter  how 
many  municipalities  or  cities  it  may  con- 
tain, should  work  harmoniously,  and  this  requires 
that  they  should  be  under  one  management.  A 
municipality  must  confine  its  operations  to  its 
own  territory.  If  it  goes  beyond  that  it  uses  the 
funds  of  its  citizens  for  the  benefit  of  others. 
When  it  allies  itself  with  other  municipalities 
there  must  be  divided  responsibilities  and  divided 
powers.  In  such  an  event  satisfactory  ultimate 
results  cannot  be  expected. '* 

Nor  have  satisfactory  results  been  obtained  in 
the  working  of  the  self-contained  systems  of  these 
two  Dutch  cities  within  their  own  boundaries.  At 
the  beginning  of  1903,  Amsterdam,  with  a  popula- 
tion of  525,000  had  only  5,903  telephones  in  use: 
whilst  Boston,  with  about  the  same  population, 
had  then  at  least  four  times  that  number;  Man- 
chester (population  543,390),  over  10,000;  and  Co- 

308 


STATE  AND  MUNICIPAL  TELEPHONES 

penhagen  (population  312,859),  over  17,500— the 
telephones  in  these  three  cities  being  under  pri- 
vate operation.  Rotterdam  (population  332,000), 
with  4,185  municipal  telephones,  compares  badly 
with  Cincinnati,  which,  though  of  less  population, 
has  14,312  telephones  under  private  ownership. 
Amsterdam  municipality,  with  an  inadequate  and 
inferior  service,  unenterprising  and  little  used,  a 
high  tariff  and  irrational  and  unfair  rates,  suc- 
ceeded in  stifling  the  private  system  by  a  limited 
franchise  and  a  tax  of  21  per  cent,  on  the  gross 
receipts.  Mr.  Bethell  shows  that  the  franchise 
tax  paid  to  the  city  in  1894  amounted  to  $17,125.- 
20,  the  company  having  then  less  than  1,700  sta- 
tions. In  1902,  with  more  than  5,000  stations, 
the  municipal  telephone  system  paid  into  the  com- 
mercial treasury  a  sum  of  $20,000.  Had  the  com- 
pany by  1902  been  allowed  to  develop  its  system 
to  the  number  of  municipal  stations  in  that  year, 
or  three  times  the  number  of  private  stations  in 
1894,  its  contribution  to  the  city  funds  made  in 
the  latter  year  would  have  increased  threefold  by 
1902,  or  $51,375 ;  per  contra,  the  common  treas- 
ury only  received  $20,000  under  municipal  man- 
agement of  the  telephones. 

A  word  remains  to  be  said  of  Greece,  where  one 
hears,  from  a  report  of  the  United  States  consul, 
of  a  growing  discontent  there  with  existing  tele- 

309 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

phone  conditions.  He  says  that  the  appliances 
in  use  are  inadequate,  and  the  service  is  unsatis- 
factory. For  this  reason  the  telephones  are  but 
poorly  patronized,  and  it  is  stated  that  they  are 
an  unprofitable  investment  to  the  Government 
which  controls  them.  Things  appear  to  have 
reached  a  pass  where  the  Government  would 
grant  a  concession  to  some  reliable  private  com- 
pany prepared  to  install  up-to-date,  effective  tele- 
phones. The  people  are  said  to  be  ready  for  such 
a  telephone  service,  and  would  support  it  with 
their  patronage.  The  value  of  the  present  plant 
is  put  at  the  insignificant  figure  of  $125,000,  and 
there  are  at  present  only  about  600  telephones  in 
operation  in  Athens,  PirsBus,  Phaleron,  Kephi- 
sia  and  Decelia,  and  one  long-distance  wire  con- 
necting Athens  and  Patras.  The  consul  considers 
that  there  is  a  profitable  opening  for  American 
capital,  as  there  appears  to  be  a  very  general  de- 
sire on  the  part  of  the  people  for  an  improved 
service.  And  for  that  they  turn  from  the  Gov- 
ernment and  look  to  private  enterprise  to  supply 
it. 

In  striking  contrast  to  the  unsatisfactory  state 
of  things  in  European  cities  where  the  telephones 
are  in  State  or  municipal  hands,  is  their  superior 
efficiency  in  the  Scandinavian  countries  under 
private  ownership.     Mention  has  already  been 

310 


STATE  AND  MUNICIPAL  TELEPHONES 

made  of  Copenhagen,  in  Denmark.  There 
the  development  of  the  telephone  by  proper  ser- 
vice and  reasonable  rates  is  wholly  due  to  intelli- 
gent and  energetic  private  enterprise.  In  Stock- 
holm, Sweden,  where  the  State  and  the  company 
are  in  active  competition  so  keen  as  to  make  the 
rates  even  too  cheap  for  Swedish  manufactures, 
the  private  system  in  1903  numbered  32,563  tele- 
phones in  a  population  of  300,624;  these  figures 
bring  Stockholm  in  line  with  American  cities  of 
relatively  the  same  class  which  are  well  served 
with  telephones. 

The  table  on  page  312  shows  at  a  glance  how 
badly  off  for  telephone  service  are  European  cit- 
ies where  the  undertaking  is  State  or  municipally 
managed,  compared  with  cities  where  private  op- 
eration obtains  (the  figures  generally  refer  to  the 
years  1902  and  1903). 

The  people  of  the  United  States  so  far  have 
had  no  experience  of  State  or  municipal  tele- 
phones. Since  the  expiration  of  the  original  pat- 
ents, competition  has  not  only  greatly  increased 
the  eflficiency  and  reduced  the  cost  but,  in  some 
states  where  the  laws  have  effectually  regulated 
these  monopolies,  has  established  a  service  and 
low  rates  it  would  be  difl&cult  to  excel.  Immunity 
from  State  and  municipal  interference  undoubt- 
edly accounts  for  the  fact  that  the  United  States, 

311 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 


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312 


STATE  AND  MUNICIPAL  TELEPHONES 

with  its  population  of  78,000,000  in  1902,  had 
3,400,000  telephones,  whilst  the  United  Kingdom, 
where  the  State  and  municipalities  have  been  a 
constant  drag  on  the  National  Telephone  Co.,  pos- 
sessed only  365,198  telephones  for  a  population 
of  42,000,000.  The  contrast  is  further  accentu- 
ated by  comparing  the  capital  invested  in  tele- 
phones in  the  two  countries :  United  States,  $384,- 
534,066;  United  Kingdom,  about  $75,000,000. 
Whilst  London  has  only  18  telephones  per  1,000 
inhabitants,  or  one  telephone  per  55,  California 
has  a  telephone  for  every  14  inhabitants,  Ohio 
one  for  every  19,  San  Francisco  one  for  every  9, 
New  Orleans  one  for  every  41,  and  New  York  one 
for  every  39  inhabitants.  The  extraordinary 
strides  the  telephone  has  made  in  the  United 
States  through  individual  enterprise  having  been 
given  free  play,  can  be  seen  from  this  table,  pub- 
lished in  1906 : 


Number     of     tele- 
phones    in     the 

In  1880 

In  1902 

Ratio  to 

popnlation— 

persons  per 

telephone 

United  States  . . 

54,319 

2,315,297 

923 

Population    

50,155,783 

78,576,436 

34 

Systematic  improvements  in  equipment,  and 
frequent  "scrapping"  of  old  plant  (a  practice  gen- 
erally unknown  in  State  and  municipal  manage- 
ment of    telephones    in    Europe)    have    largely 

313 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

operated  to  cause  the  great  and  continuous  devel- 
opment of  telephones  in  America.  The  following 
excerpt  from  the  report  of  the  Merchants '  Associa- 
tion of  New  York,  which  in  1905  inquired  into  the 
telephone  system  of  that  city,  equally  applies  to 
other  American  centers:  "In  the  New  York  tele- 
phone system  improvements  and  changes  have  suc- 
ceeded one  another  at  close  intervals  during  the 
entire  period  in  which  the  business  of  exchange  tel- 
ephone service  has  existed.  During  the  sixteen 
years  which  the  committee's  investigation  covers, 
the  plant  has  been  practically  rebuilt  three  times. 
At  various  times  radical  improvements  have  been 
made  in  cables  and  in  switchboard  systems,  which 
have  involved  the  abandonment  of  plant  by  no 
means  unserviceable,  because  of  its  physical  con- 
dition and  its  replacement  by  plant  of  an  improved 
character.  Some  of  the  central  stations  have  been 
rebuilt  three  times  within  a  little  over  ten  years. ' ' 
The  significant  difference  which  exists  between 
the  telephone  system  of  America  and  that  of  the 
United  Kingdom  and  other  European  countries  is 
to  be  attributed  solely  to  the  fact  that  in  Amer- 
ica no  restrictions  have  been  placed  on  its  devel- 
opment, whilst  in  Europe  the  telephone  system 
has  never  been  treated  as  a  legitimate  business 
enterprise,  and  has  never  had  a  fair  field. 
Though  of  late  years  improvements  have  been 

314 


STATE  AND  MUNICIPAL  TELEPHONES 

made  in  the  British  system,  nothing  like  a  general 
and  complete  re-equipment,  bringing  the  service 
to  a  uniform  high  efficiency,  such  as  long  ago  was 
accomplished  in  America,  has  been  undertaken. 
There  is  a  larger  field  for  telephone  enterprise 
in  London  than  anywhere  else  in  the  world,  and  to 
telephone  it  according  to  its  needs,  or  at  the  same 
rate  of  development  that  is  taking  place  in  New 
York,  Mr.  H.  L.  Webb^  estimates  would  require 
an  annual  increase  of  stations  of  about  75,000.  At 
present  the  increase  is  only  18,000  stations  annu- 
ally. **Not  until  the  present  unbusiness-like  tariff 
is  modified  and  the  telephone  needs  of  London  are 
studied  on  a  whole,  will  any  sound  progress  be 
made  toward  a  real  solution  of  the  problem.  To 
distribute  500,000  telephones  over  the  640  square 
miles  of  London  will  require  a  total  capital  of  not 
less  than  $75,000,000,  and  by  the  time  that  500,000 
telephones  are  in  service,  that  number  will  only 
seem  a  moderate  development  for  London. ' '  ^  How 
the  Government,  when  it  takes  complete  charge  of 
the  whole  telephone  system  in  1911,  will  handle  the 
problem  is  a  question  not  easily  answered.  But  it 
is  certain  that  had  the  National  Telephone  Com- 
pany been  left  alone  in  the  past,  and  had  not  the 
shadow  of  State  expropriation  been  hovering  over 

^ ' '  London  Times  Engineering  Supplement, ' '  April  25,  1906. 
'Ibid. 

315 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

it  to-day,  telephonic  development  in  Great  Britain 
would  have  proceeded  very  much  along  the  lines 
followed  in  the  United  States.  Even  now,  with 
years  of  arrested  development  to  make  up,  consid- 
erable progress  could  be  effected  if  a  longer  life 
was  assured  to  the  company. 

However,  enough  has  been  said,  I  think,  to  prove 
conclusively  that  State  and  municipal  monopoly 
and  restrictions  of  telephonic  progress  in  Europe, 
especially  in  Great  Britain,  are  to  be  carefully 
noted  by  the  American  people,  in  order  that  the 
same  unsatisfactory  conditions  should  not  be  al- 
lowed to  obtain  a  footing  in  the  United  States. 
So  far  from  the  public  conduct  of  utilities  in  Eu- 
rope affording  an  example  to  be  followed  by  that 
country,  the  march  of  progress  in  all  directions 
by  individual  effort  in  America  rather  presents 
a  useful  object-lesson  for  Europe  to  take  heed  of. 
The  European  method  of  State  or  municipal  ac- 
quisition of  public  utilities  is  to  be  studied  only 
as  an  economic  disease,  the  existence  of  which  in 
the  Old  World  is  of  value  as  pointing  the  way  to 
the  necessity  of  taking  preventive  measures  in  the 
New  World :  otherwise  the  epidemic  may  succeed 
in  securing  a  foothold  in  the  United  States  and 
devitalize  its  present  unparalleled  activities. 


316 


CHAPTER  XV 

MUNICIPAL  HOUSING 

No  call  for  Municipal  intervention  in  housing  beyond  clearance  of 
insanitary  areas  .  .  .  Industrial  dwelling  corporations  .  .  .  Pri- 
vate builders  solve  problem  in  London  suburbs  .  .  .  Housing 
operations  of  London  County  Council  .  .  .  Suppression  of  ac- 
tual cost  of  Municipal  housing  sites  .  .  .  Tax-subsidized  dwell- 
ings .  .  .  London  TraflBc  Commission's  criticisms  .  .  .  Heavy 
losses  wherever  Council  have  provided  workmen's  dwellings  .  .  . 
Light  on  Council's  accounting  methods  of  showing  housing 
"profits"  from  Mr.  Bernard  Shaw  .  .  .  Failure  of  Municipal 
housing  on  commercial  basis  in  provincial  cities  ...  In  Bir- 
mingham and  Liverpool  renting  building  sites  to  private  con- 
tractors recommended  to  avert  further  losses  .  .  .  Discourage- 
ment of  house  building  by  private  enterprise  through  Municipal 
competition  .  .  .  House  builders  handicapped  in  London  .  .  . 
Dishousing  the  poor,  and  providing  accommodation  for  better 
class  .  .  .  Political  objects  of  Municipal  housing  .  .  .  Creating 
work  for  public  works'  department  .  .  .  The  case  against 
Municipal  housing  in  London,  and  causes  for  greater  cost 
thereof  detailed  .  .  .  Difficulties  as  to  purchase  of  housing  sites 
in  London  aggravated  by  Municipal  action  .  .  .  Despite  obsta- 
cles, good  work  shown  by  private  builders  in  contrast  with 
Municipal  performance  .  .  .  Objection  to  State  or  Municipal 
management  applied  to  housing. 

rr  adding  to  their  many  onerous  duties  by  be- 
coming house-builders  and  house-owners  on  a 
large  scale,  British  municipalities  cannot  justify 
their  action  on  the  plea  that  they  were  supplying 
a  "long-felt  want"  of  the  working  classes,  as  may 
conceivably  be  advanced  by  their  providing  baths, 
wash-houses,  parks,  open  spaces,  and  the  like. 
Private  enterprise,  either  in  the  form  of  com- 

317 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

panies  or  individuals  with  defined  commercial  ob- 
jects, or  semi-philanthropic  bodies  content  with 
a  small  return,  were  unostentatiously  doing  the 
same  thing  very  well  before  municipal  housing 
was  thought  of.  The  crying  need  of  the  poor  for 
cheap  and  properly  built  houses  or  tenements 
particularly  appealed  to  private  benevolence. 
Directors  of  great  housing  trusts  and  companies 
in  London,  for  example,  have  given  their  services 
gratuitously,  and  rents  have  been  charged  at  so 
low  a  figure  that  the  housing  undertaking  was 
little  more  than  self-supporting.  The  Peabody 
Donation  Trust,  the  Guinness  Trust,  and  other 
industrial  dwelling  corporations  in  London  have 
kept  pace  with  the  demand  for  decent  houses  for 
the  working  classes;  and  in  no  degree  have  mu- 
nicipal experiments  in  the  same  direction  suc- 
ceeded in  pointing  to  better  results.  A  municipal 
model  dwelling  only  differs  from  a  private  model 
dwelling  because  it  is  municipal.  Municipal  in- 
tervention in  housing  has  removed  no  grievance, 
for  none  existed  (clearing  insanitary  districts  of 
slums  is  another  question),  and  it  has  not  pro- 
vided better  accommodation,  for  the  competition 
between  the  housing  companies  was  active  enough 
to  compel  them  to  keep  their  cottages  and  model 
dwellings  at  a  degree  of  comfort,  cleanliness  and 
convenience  which  left  no  room  for  a  municipality 

318 


MUNICIPAL  HOUSING 

to  attempt  improvements.  The  charge  made 
against  private  enterprise,  that  it  has  shown  it- 
self to  be  incompetent,  or  at  least  ineffective,  in 
dealing  with  the  housing  problem  is  capable  of 
easy  disproof.  Mr.  James  Parsons,*  who  has 
made  a  study  of  the  housing  problem  as  it  applies 
to  London,  has  effectively  disposed  of  the  fallacy. 
In  doing  so  he  refers  to  the  movement  of  the  pop- 
ulation of  London  within  the  decade  1891-1901, 
as  shown  by  the  Census  of  the  latter  year,  which 
pointed  to  an  increase  of  population,  within  the 
Administrative  County  of  London,  of  308,000; 
whilst  within  the  wider  boundary  of  Greater  Lon- 
don which  includes  portions  of  the  counties  of 
Surrey,  Kent,  Essex  and  Hertford,  the  increase 
was  639,000,  together  an  increase  in  population 
of  947,000.  In  some  of  the  central  districts,  how- 
ever, there  was  a  decline  in  population  amount- 
ing altogether  to  67,000,  which,  in  view  of  the  in- 
crease for  the  whole  of  Greater  London,  pointed 
to  a  transference  of  population  of  that  number 
from  the  central  districts  to  the  outskirts.  There- 
fore, the  total  number  of  those  for  whom  addi- 
tional house  room  was  provided  during  the  decade 
was  1,014,000.  Mr.  Parsons,  for  want  of  exact 
data,  has  had  to  conjecture  the  amount  of  capital 
sunk  in  providing  this  accommodation.    But  reck- 

*  "Housing  by  Voluntary  Enterprise." 

319 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

oning  the  family  at  4.4  persons  on  an  average,  the 
number  of  families  housed  was  230,000,  and 
putting  the  capital  expenditure  at  $1,250  per  fam- 
ily, the  sum  expended  exceeds  $285,000,000. 

Let  us  glance  at  the  operations  of  the  London 
County  Council  in  the  same  direction.  According 
to  published  figures^  the  housing  committee  of  that 
body,  between  1890  and  March  31, 1906  (16  years) 
have  provided  accommodation  in  the  form  of  cubi- 
cles, cottages  or  tenements  in  block  dwellings  for 
33,847  persons,  at  a  cost  of  $11,527,155.  (No  ac- 
count is  taken  here  of  a  large  program  of  housing 
schemes  in  course  of  development,  which,  includ- 
ing existing  undertakings,  brings  the  CounciPs 
housing  estate  to  $25,000,000.)  The  actual  cap- 
ital expenditure  works  out  at  $1,500  per  family, 
if  all  the  dwellings  were  occupied  to  the  number 
provided;  but  if  the  number  of  persons  actually 
occupying  municipal  dwellings  at  the  Census  of 
1901  (which  was  then  about  a  third  less  than  the 
accommodation  provided)  be  taken  as  a  basis  for 
arriving  at  the  number  of  persons  the  London 
County  Council  at  present  house,  the  capital  cost 
per  family  works  out  a  third  more— or  $2,000  per 
family. 

It  is  to  be  also  noted  that  the  estimated  cost 
of  sites  is  not  the  actual  cost.     Many  sites  built 

*  "London  Times,"  Aug.  15,  1906. 
320 


MUNICIPAL  HOUSING 

on  by  the  Council  have  been  written  down  from 
their  commercial  value  to  nil,  and  subsidized  be- 
sides—one site  by  $750,000,  another  to  nil  and 
subsidized  by  over  $18,000,  and  a  third  by  $5,000. 
The  local  Government  Board  has  called  attention 
to  this  deliberate  manipulation  of  the  working- 
class  dwellings  act,  the  object  of  which  presum- 
ably is  not  to  disclose  the  whole  truth  to  the  tax- 
payers. Another  instance  is  the  cost  of  a  site 
(Brightlingsea  buildings)  at  Eotherhithe,  which 
was  $60,000,  and  for  re-housing  purposes  the 
valuer  put  it  down  at  $5,000.  But  the  housing 
committee  of  the  Council  obtained  the  site  for 
nothing.  When  the  buildings  were  put  up,  the  com- 
mittee found  that  they  would  never  yield  a  profit ; 
rather  there  would  be  a  loss  to  the  taxes  of  $1,985 
a  year.  Instead  of  charging  this  loss  against 
the  buildings  they  are  subsidized  year  by  year  out 
of  the  capital  account.  Yet  another  case  is  that 
of  the  Beakesbourne  buildings  at  Rotherhithe. 
The  Council  gave  the  housing  committee  the  site, 
valued  at  $15,250,  for  nothing,  and  in  addition 
credited  the  housing  account  with  a  capital  sum 
of  $31,675  ' '  to  preserve  equilibrium ! "  A  member 
of  the  Council,  commenting  on  these  instances,* 
said  that  if  such  a  thing  had  been  done  by  a 
limited  company  it  would  have  been  designated  by 

»Mr.  Edward  Collins,  "The  Times,"  Aug.  15,  1906. 
ai  321 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

another  name.  He  also  pointed  out  that  the 
Council  owns  nearly  300  acres  of  vacant  land, 
bought  at  building  land  price,  at  an  average  of 
$2,500  an  acre,  which  entails  interest  (at  3i/^  per 
cent.)  of  about  $500  a  week;  every  five  weeks  the 
value  of  an  acre  of  this  land  will  thus  be  absorbed 
by  interest. 

Hence  if  regard  be  given  to  the  considerable 
under-estimates  of  capital  expenditure  made  on 
account  of  municipal  housing  for  the  working 
classes,  the  cost  per  family  incurred  by  the  Council 
must  be  double  or  treble  $2,000.  But  apart 
from  the  cost,  to  provide  housing  for  33,847 
persons  in  16  years,  if  account  be  taken  of  the 
wage-earning  population  of  London,  is  not  a  very 
striking  performance.  It  becomes  insignificant 
beside  the  enterprise  of  voluntary  persons  who  in 
ten  years  provided  house  room  for  1,014,000.  Not 
a  few  of  the  Council's  buildings,  moreover,  are  in 
the  central  districts,  the  population  of  which 
either  remains  stationary  or  is  declining— i.  e., 
is  migrating  to  the  outer  districts.  Hence  the 
houses  which  the  Council  have  built  in  the  central 
area  contribute  nothing  to  the  solving  of  the  hous- 
ing problem,  but  only  accentuate  it  by  adding  to 
the  congestion.  Here  the  question  of  overcrowd- 
ing enters.  The  Royal  Commission  on  London 
Traffic,  in  their  report,  made  some  observations 

322 


MUNICIPAL  HOUSING 

which  closely  bear  upon  the  Council's  housing 
policy,  and  which,  in  a  striking  manner,  show 
what  a  failure  it  has  been.  They  pointed  out  that 
overcrowding  and  the  average  weekly  rents  of 
workmen's  dwellings  in  the  metropolitan  area 
were  greatest  in  the  central  area,  and  tended  to 
diminish  towards  the  circumference,  and  that  the 
price  of  land  in  the  central  districts  made  it  im- 
possible to  re-house  the  working  classes  there  at 
rents  which  they  could  afford  to  pay  without  a 
heavy  loss  to  those  which  undertake  the  re-hous- 
ing. Then  followed  an  illustration  of  the  loss  in- 
curred by  re-housing  the  working  classes  in  the 
central  portions  of  London  as  furnished  by  some 
recent  experiences  of  the  London  County  Council : 
"In  connection  with  certain  street  improve- 
ments, especially  the  formation  of  the  new  street 
from  Holbom  to  the  Strand,  the  Council  was  re- 
quired, under  the  authorizing  act,  to  build  work- 
men's dwellings  in  place  of  those  that  were  de- 
molished. For  this  purpose  they  bought  the 
Bourne  estate,  close  to  the  site  of  the  improve- 
ment. The  cost  price  was  $1,005,535,  being  the 
commercial  value.  They  were  obliged  to  write 
this  sum  down  to  $220,000,  its  value  earmarked 
for  artisans'  housing,  and  to  debit  the  balance  to 
the  cost  of  street  improvements.  This  was  nec- 
essary in  order  to  admit  of  charging  rents  within 

323 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

the  means  of  the  families  to  be  provided  for. 
Even  after  this  writing  down,  they  have  had  to 
charge  rents  from  $2.37  to  $2.75  a  week  for  a 
three-roomed  tenement,  in  order  to  reimburse 
themselves  for  this  artificially-reduced  outlay. 
The  buildings  erected  will  accommodate  2,640  per- 
sons, and  there  is  therefore  a  loss  of  very  nearly 
$300  per  head  of  the  persons  re-housed,  and  the 
whole  of  this  loss  falls  upon  the  taxes.  About 
the  same  time  the  London  County  Council  pur- 
chased some  land  at  Tooting,  which  is  accessible 
by  electric  tramway,  as  well  as  by  railway,  in  or- 
der to  build  workmen's  dwellings.  They  acquired 
it  at  a  price  which  required  no  writing  down,  and 
are  now  letting  three-roomed  cottages  at  Tooting 
at  rents  of  from  $1.75  to  $1.87  per  week.  The 
Tooting  scheme  is  self-supporting.  The  following 
figures  will  show  how  it  is  that  the  one  scheme  en- 
tails a  very  heavy  loss,  and  the  other  entails  no 
loss  at  all : 

On  the  Bourne  estate,  actual  cost  of  land  for 

a  three-roomed  tenement $2271,00 

Cost  of  building,  etc 1537.12 


Total $3808.12 


On  the  Tooting  estate,  actual  cost  of  land  for 

a  three-roomed  cottage $  143.75 

Cost  of  building,  etc 1173.75 


Total $1317.50 

324 


MUNICIPAL  HOUSING 

**The  lesson  to  be  learned  from  the  two  cases 
just  cited,"  the  commissioners  continue,  *'is  con- 
firmed by  every  housing  scheme,  without  excep- 
tion, that  the  London  County  Council  have  under- 
taken: wherever  they  have  had  to  provide  work- 
men's dwellings  in  the  central  districts,  there  has 
been  a  heavy  loss.  In  effect  the  rents  are  largely 
paid  out  of  the  taxes.  In  the  few  cases  where 
they  have  provided  workmen's  dwellings  outside, 
the  schemes  have  been  self-supporting  as  far  as 
houses  have  been  built.  A  table  appended  to  the 
report  shows  that,  in  the  central  districts,  London 
taxpayers  have  sustained  a  loss  of  $2,063,415  in 
re-housing  7,586  persons  on  18.55  acres. ' ' 

But  if  the  Council's  housing  scheme  in  the  cen- 
tral districts  were,  at  the  time  of  the  report,  seri- 
ous failures,  events  have  subsequently  shown  that 
several  of  their  suburban  housing  schemes  are  in 
like  case.  A  writer  in  ' '  Municipal  Notes ' '  * 
points  out  that  even  the  Tooting  housing  scheme, 
and  those  at  Tottenham  and  Norbury  are  any- 
thing but  successful.  At  Tottenham  many  houses 
will  not  let.  The  rents  are  too  high  for  the  over- 
crowded poor.  There  the  Council  have  an  es- 
tate which  cost  $455,805 ;  on  five  acres  of  it  were 
built  141  cottages  at  a  cost  of  $250,000,  the  in- 
tention being  to  spend  some  two  millions  sterling 
in  laying  out  the  estate.  The  taxes  as  usual  bear  the 

*  November,  1905. 

325 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

burden  (the  cost  is  nearly  equivalent  to  a  tax-levy 
of  a  penny  in  the  pound  on  the  Council's  area)  of 
what  is  a  complete  failure  to  make  profitable  a 
venture  which  there  is  no  reason,  except  munic- 
ipal methods,  should  not  be  a  good  one.  One 
estate  chosen  for  these  cottages  adjoins  a  ceme- 
tery, and  railway  stations  are  remote.  At  Tooting 
the  rooms  are  too  small,  and  not  suitable  for  work- 
men. At  Norbury  little  has  been  done  so  far  as 
building  is  concerned.  Certainly,  the  Norbury  and 
Tottenham  schemes  are  not  for  London  workmen. 

In  view  of  what  has  been  said  of  the  London 
County  Council's  financial  methods,  it  is  not  sur- 
prising that  the  latest  accounts  as  published  (to 
March  31,  1906)  should  be  made  to  *'show"  a 
profit.  No  one  can  take  seriously  the  following 
figures  contained  in  the  report  of  the  housing 
of  the  working-classes  committee  of  the  Council.^ 

''The  net  result  of  the  year's  working,"  says 
the  report, ''  is  a  surplus  of  £2661  ($13,305)  on  all 
dwellings  in  occupation,  to  which  must  be  added 
the  sum  of  £685  ($3,425)  in  respect  of  interest  on 
cash  balances,  making  a  total  surplus  of  £3,346 
($16,730).  The  total  financial  results  on  all 
dwellings  and  estates  owned  by  the  Council  from 
the  opening  of  the  first  block  in  April,  1894,  up  to 
March,  1906,  shows  that  a  sum  of  £56,882  ($284,- 

'" London  Times,"  Aug.  15,  1906. 

326 


MUNICIPAL  HOUSING 

410)  has  been  temporarily  defrayed  out  of  taxes, 
of  which  £17,798  ($88,990)  has  already  been  re- 
paid out  of  revenue  from  the  dwellings,  leaving  a 
net  contribution  of  £39,084  ($195,420)  up  to  March 
last.  Of  this  amount  the  sum  of  £30,823  ($154,- 
115)  represents  the  sinking-fund  charges  and  in- 
terest in  respect  of  estates  which  have  been  ac- 
quired and  are  in  course  of  development.  Against 
the  net  amount  contributed  from  the  taxes,  the 
following  provisions  have  been  made  entirely  out 
of  revenues  from  the  dwellings  and  estates:  (1) 
£29,295  ($146,475),  standing  to  the  credit  of  the 
repairs  and  renewals  fund  after  paying  for  all 
repairs  and  renewals  required  up  to  date,  and  (2) 
£78,511  ($392,555)  representing  the  amount  set 
aside  for  sinking-fund  or  repayment  of  capital 
with  interest  to  date.  This  makes  a  total  in  hand 
of  £107,806  ($539,030),  and  deducting  from  this 
the  net  contributions  from  taxes,  £39,084  ($195,- 
420)  there  is  a  balance  in  hand  of  £68,722  ($343,- 
610)." 

As  a  diplomatic  misrepresentation  of  the  actual 
position  of  the  Council 's  housing  undertaking,  this 
report  is  hard  to  beat.  To  pull  it  to  shreds  and 
tatters  would  be  easy;  but  I  shall  spare  myself 
the  task  by  quoting  what  one  distinguished  advo- 
cate of  municipalization  (Mr.  George  Bernard 
Shaw)  has  to  say  about  the  method  by  which  the 

327 


THE  DANGERS  OF  MUNICIPAL  OWNEESHIP 

Council  is  able  to  make  an  absolutely  unproduc- 
tive undertaking  appear  reproductive.  Mr.  Shaw 
goes  so  far  as  to  admit  (and  as  a  supporter  of  Mu- 
nicipal Ownership  of  the  advanced  school,  he  is 
going  very  far  indeed  in  doing  so)  that  ''a  munici- 
pality has  to  throw  economics  to  the  winds  by  buy- 
ing land  at  its  real  market  value,  and  charging  it 
to  its  housing  schemes  at  its  value  for  working- 
class  dwellings  (a  pure  figment),  the  taxpayer 
making  up  the  difference  between  this  and  the  real 
market  value.  Having  performed  this  conjuring 
trick,  the  municipality  generally  proceeds  to  pass 
a  resolution  that  the  dwellings  shall  be  let  at  rents 
sufficient  to  prevent  any  loss  coming  upon  the 
taxpayers,  without  mentioning  that  they  have  al- 
ready home  a  loss  which  does  not  appear  in  the 
housing  accounts.  Even  then,  the  ejff  ect  of  the  res- 
olution, when  it  is  strictly  carried  out,  is  to  put  the 
rents  too  high  for  the  sake  of  enabling  the  bor- 
ough treasurer  to  make  a  delusive  demonstration 
that  the  dwellings  are  paying  their  way  commerci- 
ally/'^ No  more  enlightening  exposure  of  the 
figures  in  the  report  just  quoted  could  be  made 
than  this.  Indeed,  one  is  rather  startled  to  read 
the  plain  unvarnished  truth  written  by  an  able 
spokesman  for  the  municipalities,  who,  he  would 
have  us  believe,  can  do  no  wrong.     But  his  admis- 

1  *  *  The  Common-Sense  of  Municipal  Trading, ' '  chap.  viii. 

328 


MUNICIPAL  HOUSING 

sions  do  not  stop  short  at  an  acknowledgment  of 
deceptive  accounting  in  municipal  housing.  **Its 
opponents,"  he  says,  *'can  always  easily  demon- 
strate that,  in  city  centers  at  least,  the  schemes 
are  commercially  hopeless,  and  that,  though  the 
rents  are  too  high  for  the  tenants,  they  are  yet  so 
low  relatively  to  the  real  site  value  that  the  ten- 
ants are  virtually  receiving  a  grant  in  aid  of  their 
wages  at  the  expense  of  their  fellow  citizens." 
Here  I  find  an  unexpected  endorsement  of  a  view 
I  have  frequently  expressed.  Later  on  he  runs 
foul  of  municipal  block  dwellings  both  from  a 
utilitarian  and  an  artistic  aspect.  What  can  be 
said  of  the  following  passage  save  that,  coming 
from  a  work  entitled  '  *  The  Common  Sense  of  Mu- 
nicipal Trading,"  it  is  a  direct  impeachment  of 
the  ''common  sense"  claimed  for  the  policy,  in 
that  it  points  to  the  short  life  of  municipal  dwell- 
ings, with  a  consequent  waste  of  money  in  build- 
ing them  on  their  present  lines  if  social  progress, 
as  he  prophesies,  is  likely  to  demand  their  demo- 
lition: ''These  places  seem  at  first  so  enormously 
superior  to  the  filthy  rookeries  they  replace  that 
their  revolting  ugliness,  their  asphalted  yards 
with  the  sunlight  shut  out  by  giant  cliffs  of  brick 
and  mortar,  their  flights  upon  flights  of  stony  steps 
between  the  streets  and  the  unfortunate  women 
and  children  on  the  upper  floors,  their  quaint 

329 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

plan  of  relieving  a  crowd  on  the  floor  by  stacking 
the  people  on  shelves,  are  overlooked  for  the  mo- 
ment, but  long  before  they  become  uninhabitable 
from  decay  they  will  become  as  repugnant  as  the 
warrens  they  have  supplanted.  In  short,  the  mu- 
nicipalities of  the  future  will  be  almost  as  active 
in  knocking  our  towns  down  as  building  them 
up."  They  will,  in  other  words,  be  consumed  by 
a  desire  to  eradicate  these  monuments  of  their 
early  follies.  Perhaps  by  that  time  they  will  also 
be  brought  to  acknowledge  their  error  in  usurp- 
ing a  work  in  the  carrying  out  of  which  voluntary 
enterprise  has  conclusively  showed  itself  to  be  the 
superior.  In  fact,  this  doughty  champion  of  the 
municipalities  by  implication  admits  that  private 
enterprise  is  the  proper  agency  for  supplying 
houses,  when  he  says  that  the  municipality  cannot 
compete  with  it;  that  private  enterprise  can  sup- 
ply everybody  in  a  constituency,  whilst  a  munici- 
pality in  housing  is  restricted  by  law  to  insanitary 
areas  and  to  workmen's  dwellings;  that  a  private 
builder  can  proceed  much  more  cheaply  than  a 
municipality  can ;  that  a  municipality  is  compelled 
to  take  the  refuse  of  a  trade,  and  to  carry  it  on  in 
the  most  expensive  manner— that,  in  short,  com- 
parison between  private  and  municipal  housing  is 
impossible. 

330 


MUNICIPAL  HOUSING 

In  several  provincial  cities  where  the  local  au- 
thorities (not  content  to  clear  insanitary  areas, 
and  that  done,  to  lease  the  site  to  private  persons 
at  a  good  ground  rent)  build  municipal  houses 
no  endeavor  is  made  to  ''show"  that  the  under- 
taking has  a  ''balance  in  hand."  In  Manchester 
we  are  told,^  the  municipality  does  not  attempt 
to  carry  out  its  re-housing  schemes  on  a  com- 
mercial basis  at  all;  they  decided  to  treat  them 
as  part  of  a  great  work  of  "sanitary  ameliora- 
tion," part  of  the  cost  of  which  should  be  met 
out  of  the  local  taxes.  Here  is  a  criticism  of  how 
they  are  carrying  out  the  ' '  great  work  "  by  a  mem- 
ber of  the  Manchester  Municipal  Council  r^ 

"One  class  of  tenants  has  been  scattered  from 
the  old  slums,  and  another  class  has  been  catered 
for  in  the  new  tenements  erected.  Thus  the  3s. 
(75  cents)  a  week  man  has  not  found  a  new  3s. 
(75  cents)  a  week  house  awaiting  him  when  driven 
out  of  his  condemned  home.  Houses  have  been 
put  up  at  a  rental  that  private  enterprise  would 
supply  and  does  supply  in  sufficient  number.  Con- 
sequently the  Council  not  only  fails  in  its  first  duty 
to  the  class  which  needs  attention,  but  it  creates  a 
new  evil  by  coming  into  competition  with  the 

^"Municipal  Year  Book,"  1906,  p.  494. 

» Mr.  T.  B.  Marr,  ' '  Manchester  Courier, ' '  January  16,  1906. 

331 


THE  DANGEES  OF  MUNICIPAL  OWNEESHIP 

builder  and  the  landlord.  A  conspicuous  example 
of  this  was  found  when  a  warren  was  destroyed 
where  the  rooms  had  been  let  at  half-a-crown  (62 
cents)  a  week  and  the  tenants  were  told  they  could 
take  themselves  to  certain  municipal  dwellings  at 
a  weekly  rental  of  5s.  6d.  ($1.37)— now  inhabited 
chiefly  by  municipal  tramway  employees."  As  is 
the  case  in  London,  which  I  will  presently  show, 
the  authorities  drive  out  people  from  their  slums 
without  providing  other  accommodation  within 
their  means.  The  dishoused  people  only  seek 
other  slums.  It  is  difficult  to  see  how  the  pursuit  of 
such  policy  can  promote  ' '  sanitary  amelioration. ' ' 

In  Glasgow  the  municipality  acquired  posses- 
sion under  statutory  power  of  slum  areas  extend- 
ing over  88  acres,  and  occupied  by  a  population 
of  51,000  persons,  the  cost  of  the  scheduled  prop- 
erties being  about  $10,000,000.  A  substantial  por- 
tion of  the  land  was  disposed  of  to  builders  on 
chief  rent  or  feu-duty  to  a  capital  value  of  about 
$1,500,000.  The  remainder  of  the  land  was  left  on 
the  hands  of  the  municipality  until  1888,  when  they 
resolved  to  carry  out  a  building  scheme  on  their 
own  account.  They  proceeded  to  put  up  a  con- 
siderable number  of  shops  and  dwelling-houses, 
seven  large  lodging-houses,  a  laundry,  and  a 
family  home,  the  total  value  of  the  property  thus 
erected  by  them  being  about  $5,000,000.    To  meet 

332 


MUNICIPAL  HOUSING 

the  cost  of  carrying  out  their  improvement  scheme 
the  municipality  had  levied  on  the  rental  value  of 
the  city  a  rate  which  was  fixed  at  sixpence  in  the 
pound  for  the  first  year,  fourpence  in  the  pound 
for  the  next  four  years,  with  subsequent  reduc- 
tions until  one  penny  in  the  pound  was  reached,  at 
which  figure  it  stood  until  it  was  finally  abandoned 
in  1888.  The  charge  on  the  taxes  thus  extended 
over  a  period  of  more  than  twenty  years,  and  the 
total  amount  actually  contributed  by  the  taxpayers 
has  been  put  at  $3,000,000.^ 

Birmingham,  at  first,  having  cleared  its  insani- 
tary areas,  was  Wiser.  The  municipality  leased  the 
greater  portion  of  the  land  to  private  builders, 
and  obtained  annually  therefrom  in  ground  rents 
the  substantial  sum  of  $229,510.  This  is  a  simple 
way  of  carrying  out  a  housing  scheme  on  a  com- 
mercial basis,  and  also  as  a  great  work  of  sanitary 
amelioration;  for  private  enterprise,  subject  to 
the  sanitary  laws,  and  also  possessed  of  a  civic 
conscience,  can  be  depended  upon  to  keep  its  prop- 
erties in  a  fit  condition— even  without  control. 
Birmingham,  however,  has  been  unable  to  with- 
stand the  temptation  to  build  houses  on  its  own 
account  on  other  portions  of  land  acquired,  with 
the  result  that  one  scheme  has  involved  a  loss  of 
76  cents  per  house  per  week,  or  $32.10  annually 

* '  *  Municipal  Socialism, ' '  reprinted  from  the  '  *  London  Times. '  * 

333 


THE  DANGERS  OP  MUNICIPAL  OWNERSHIP 

per  house,  and  another  a  loss  of  31  cents  per  house 
per  week,  or  $16.25  annually  per  house.  On  an 
estate  of  100  houses,  the  loss  stands  out  as  a  need- 
less debit  item  against  the  large  sum  the  munici- 
palities receive  from  the  lessees  of  their  land. 
Of  late,  it  is  instructive  to  learn,  the  Housing 
Committee  of  the  Birmingham  Council  have  been 
seeking;  guidance  from  Germany,  which  country 
they  visited.  In  their  report,  as  published,^  they 
expressed  the  opinion  that  a  municipality  cannot 
own  too  much  land,  provided  that  it  is  judiciously 
purchased.  The  municipality  could  then  assist 
private  individuals  and  public  utility  building  so- 
cieties, with  whose  bonafides  they  were  satisfied, 
to  erect  at  the  lowest  possible  rate  cheerful  houses 
for  people  with  small  incomes.  The  policy  of 
buying  land  and  encouraging  other  people  to  build 
the  houses,  they  declared,  wbuld  enable  the  mu- 
nicipality to  give  a  great  stimulus  to  the  supply  of 
good  and  cheap  houses  on  the  outskirts  of  the 
city,  and  would  thereby  benefit  a  very  large  num- 
ber of  people.  On  such  a  pronouncement,  there 
is  apparently  hope  that  Birmingham  will  return  to 
its  early  policy,  after  clearing  insanitary  areas, 
of  leasing  the  land  to  private  enterprise. 

Liverpool  has  experimented  in  housing  schemes 
to  a  greater  extent  perhaps  than  any  other  city. 

» '  *  Birmingham  Daily  Post, ' '  June  2,  1906. 

334 


MUNICIPAL  HOUSING 

The  municipal  council's  tenements  now  number 
1,567,  including  those  now  in  course  of  construc- 
tion as  planned.  The  cost  up  to  the  middle  of 
1905,  together  with  the  "valuation  of  sites  for 
housing  purposes"  has  been  published  at 
$1,660,000  (the  actual  cost  is  not  shown)  and  the 
charge  on  the  taxes  is  $18,000  a  year.  Only  lately 
attempts  were  made  to  force  the  Housing  Com- 
mittee of  the  Liverpool  City  Council  to  prepare  a 
scheme  for  the  erection  of  houses  in  the  outlying 
districts  of  the  city  on  land  at  present  in  the  pos- 
session of  the  Estate  Committee,  or  on  other  suit- 
able sites.  But  the  committee  reported  that  dur- 
ing the  last  five  years  about  2,000  houses  at  rentals 
ranging  from  £12  ($60)  to  £18  ($90)  per  annum, 
and  4,500  houses  at  rentals  ranging  from  £18 
($90)  to  £25  ($125)  per  annum  had  been  erected 
by  private  enterprise  in  the  outlying  districts. 
This  vividly  impressed  the  committee  with  the 
fact  that  the  city  could  not  compete  with  private 
enterprise,  and  they  seriously  doubted  whether 
the  city  could  offer  inducements  in  respect  of 
rental  if  the  undertaking  proposed  is  to  be  con- 
ducted on  a  commercial  basis.  As,  therefore, 
there  was  no  lack  of  accommodation,  suflficient 
houses  being  provided  by  private  enterprise,  the 
committee  did  not  recommend  the  city  to  enter 
into  competition  with  private  enterprise  in  the 

335 


THE  DANGEES  OF  MUNICIPAJj  OWNEESHIP 

outlying  districts,  and  the  Council,  with  tardy 
wisdom,  agreed  not  to  do  so. 

This  city's  experience  was  brought  before  the 
Leeds  County  Council,  when  a  proposal  to  erect 
workmen's  dwellings  in  that  city  was  submitted, 
which  drove  the  chairman  of  the  unhealthy  areas 
committee  (Alderman  Lupton)  to  resign  because 
of  his  disapproval  of  municipal  houses.  As  re- 
ported in  the  "Yorkshire  Post"  of  May  3, 1906,  he 
said,  speaking  of  Liverpool,  that  "two  blocks  of 
tenements,  costing  $420,000,  produced  net  receipts 
for  1903  of  $14,600,  which  was  about  21/2  per  cent., 
and  showed  a  considerable  loss  when  interest  and 
sinking-fund  charges  were  included.  Another 
scheme  costing  $326,385  showed  net  receipts  for 
1903  of  $5,685,  and  that  was  all  there  was  to  meet 
interest  and  sinking-fund  charges.  Four  years 
ago  Liverpool  had  completed  or  had  in  course  of 
erection  797  houses.  The  loss  per  annum  on 
these  was  calculated  at  $21,500.  They  were  then 
proposing  to  build  4,800  houses,  and  expected  the 
loss  on  them  to  be  $62,000  per  annum.  He  ad- 
vised the  Leeds  Council  that  they  ought  not  with- 
out urgent  necessity  to  build  at  a  loss.  He  said 
tenement  houses  were  in  themselves  an  evil.  Mu- 
nicipal building  was  not  only  costly  in  itself,  but 
tended  to  discourage  other  building,  and  to  re- 
strict rather  than  to  increase  the  supply  of 
houses. ' ' 

336 


MUNICIPAL  HOUSING 

This  is  really  what  is  now  happening,  especially 
in  London,  where,  since  the  County  Council  and 
the  borough  authorities  went  into  the  housing 
business,  the  great  companies,  which  had  housed 
thousands  of  the  working  classes,  have  been  seri- 
ously handicapped  in  erecting  further  dwellings. 
But  for  municipal  interference  these  further  un- 
dertakings would  duly  come  into  existence  in  re- 
lief of  a  pressing  problem.  It  would  seem  at  first 
sight  that  the  relief  which  private  enterprise  has 
been  prevented  from  effecting  has  been  afforded 
by  the  municipalities,  so  that  the  same  end  is 
arrived  at  by  a  different  agency.  But  the  Lon- 
don municipalities  are  not  solving  the  housing 
problem;  they  are  only  accentuating  its  complex- 
ity by  their  methods.  As  in  Manchester,  they 
clear  away  slum  property,  by  which  a  large  num- 
ber of  the  extreme  poor  are  dishoused,  and  on  the 
vacant  land  they  build  tenements  which  are  let 
at  rents  entirely  beyond  the  means  of  the  dis- 
housed people.  The  rooms  become  occupied  by 
an  entirely  different  class  of  the  population,  who 
can  afford  to  pay  the  higher  rents  charged,  whilst 
the  slum  poor,  dishoused,  seek  other  slums,  or,  if 
they  can,  obtain  accommodation  in  a  private 
model  dwelling,  the  rents  of  which  come  within 
their  narrow  means.  But  as  the  development  of 
cheap  private  dwellings  has  been  crippled  by  the 
municipal  policy,  the  dishoused'  poor  have  less 
23  337 


THE  DANGERS  OF  MUNICIPAL  OWNERSHIP 

and  less  chance  of  finding  a  harbor  open  to  them 
in  that  direction.  From  slums  they  go  and  to 
slums  they  return. 

The  London  County  Council  and  the  local  au- 
thorities have  merely  tinkered  with  a  vast  prob- 
lem. The  more  poor  they  dishouse,  the  more 
they  make  homeless.  This  is  a  phase  of  the 
question  which  affects  the  social  well-being  of  the 
poorest  section  of  the  community,  of  which  mu- 
nicipalities are  supposed  to  be  very  regardful, 
with  the  help  of  the  public  coffers;  but  the  out- 
come of  their  exploits  in  this  direction  knocks 
the  foundation  out  of  the  principle  of  benevolent 
service  to  the  poor  they  claim  to  give,  because  the 
poor  are  left  to  shift  for  themselves,  and  the  class 
above  them  become  the  municipal  tenants. 

The  other  class  which  suffer  are  the  private 
house-owners  and  builders  and  contractors.  Mu- 
nicipalities build  huge  tenements  on  a  luxurious 
scale,  which  tempt  all  manner  of  tenants  from  the 
houses  they  were  previously  content  to  occupy, 
with  the  result  that  there  is  a  marked  deprecia- 
tion in  house  property;  while  private  builders, 
not  having  public  money  as  their  capital,  are  un- 
able to  run  to  the  same  extravagance  in  erecting 
dwellings  in  competition  with  the  local  authori- 
ties, and  are  discouraged  in  their  operations. 

The  simple  truth  is  that  a  municipal  model 
338 


MUNICIPAL  HOUSING 

dwelling,  whether  it  pays  or  does  not  (and  it 
mostly  does  not),  is  tangible,  concrete  evidence  of 
the  "benevolence"  of  the  city  fathers  toward  the 
working-class  voter.  It  impresses  him  even 
more  than  the  municipal  street-railway  does, 
because  he  lives  in  it.  The  building  is  **his," 
he  is  told,  and  it  is  his  bounden  duty  to  live  on  his 
own  property.  As  an  electioneering  device,  there- 
fore, there  is  much  to  be  said  for  municipal  hous- 
ing from  the  point  of  view  of  the  dominant  party 
in  a  local  council  whose  policy  it  is. 

Another  object  of  building  municipal  houses  is 
the  onus  forced  on  the  municipalities  of  justify- 
ing the  creation  of  the  huge  municipal ' '  works  de- 
partments," equipped  with  enormous  plant,  and 
employing  thousands  of  workmen.  The  exist- 
ence of  such  establishments  means  finding  employ- 
ment for  the  men;  something  must  be  done;  the 
works  must  be  kept  alive.  A  certain  amount  of 
municipal  building  is  therefore  carried  on  year  by 
year,  and  the  promotion  of  the  municipal-housing 
policy  provides  a  convenient  way  of  utilizing  the 
works.  In  the  domain  of  private  enterprise,  busi- 
ness activity  will  necessitate  the  promotion  of 
new  undertakings.  The  establishment  of  con- 
tractors' works,  from  which  issue  the  necessary 
material,  and  where  the  equipment  is  prepared, 
follows  as  a  matter  of  course ;  but  such  works  are 

339 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

subsidiary  to  the  particular  undertaking  in  hand, 
from  which  they  originate,  and  but  for  which  they 
would  not  exist.  The  rule  of  contrary,  as  shown, 
governs  the  creation  of  municipal  **  works  depart- 
ments. ' '  They  are  built  with  the  ostensible  object 
of  drawing  workmen  to  them.  As  municipal  em- 
ployees, the  men  perform  their  part  in  building 
municipal  houses,  which  they  duly  occupy,  and  be- 
come voters  ardently  supporting  a  policy  that  in- 
sures them  permanent  employment  at  standard 
wages  (the  London  County  Council  being  at  the 
bidding  of  the  unions),  i.e.,  wages  paid  without 
reference  to  the  individual  capacity  of  the  work- 
man—whether good,  bad  or  indifferent,  he  is  paid 
at  the  same  rate. 

Three  strong  and  insuperable  objections  to  the 
whole  principle  of  municipal  house-building  have 
been  raised  by  Miss  Octavia  Hill,  than  whom  no 
one  is  better  qualified  to  speak  of  the  question  as 
it  relates  to  London.  Added  force  is  lent  to  these 
objections  in  that  they  cannot  be  controverted. 
They  are : 

(1)  The  work  will  be  done  expensively:  no 
body  like  the  London  County  Council  can  be  an 
economical  one.  The  cost  must  be  met  in  one  form 
or  another.  Why  should  we  prefer  to  pay  in  taxes 
rather  than  in  rent?  The  mode  of  payment  by 
taxes  will  press  heavily,  being  inexorable,  and  not 
elastic. 

340 


MUNICIPAL  HOUSING 

(2)  The  London  County  Council,  which  ought 
to  be  the  supervising  authority,  will  itself  be 
pecuniarily  interested  in  the  houses  to  be  super- 
vised. 

(3)  The  electorate  will  be  in  a  large  measure 
composed  of  the  tenants  of  the  body  to  be  elected. 

The  second  point  means  that  whilst  the  Council, 
as  a  statutory  authority,  supervises  other  slums, 
and  enforces  the  provisions  of  the  various  build- 
ing and  sanitary  acts  upon  their  proprietors,  as 
a  slum  landlord  it  is  free  from  supervision,  unless 
it  attempts  to  supervise  itself.  Municipalities 
have  tried  many  things  and  failed,  and  that  would 
be  the  greatest  failure  of  all.  On  the  third  point, 
it  may  be  commented  that  if  the  houses  are  let 
at  commercial  rents,  at  once  a  privileged  class  of 
tenants  is  created,  as  even  Mr.  Bernard  Shaw  ad- 
mits. In  a  previous  chapter  consideration  has 
been  given  to  the  danger  to  which  this  may  lead. 

The  first  point,  relating  to  the  greater  cost  of 
municipal  house-building  as  carried  on  in  Great 
Britain,  admits  of  more  detailed  illustration  than 
has  already  been  given  to  it.  Here  are  some 
causes  for  the  greater  cost— some,  it  is  true,  in- 
herent, but  most  of  them  arise  from  the  volition 
of  the  municipalities* : 

(1)  Under  the  slow  procedure  enjoined  by  the 
artisans'  dwellings  acts  of  1875  and  1879,  oppor- 

^  Summarized  from  "Municipal  Socialism,"  ("London  Times")* 
23  341 


THE  DANGEKS  OF  MUNICIPAL  OWNEESHIP 

tunity  is  afforded  unscrupulous  private  persons 
to  buy  up  insanitary  areas  condemned  to  demoli- 
tion by  a  municipality,  whereupon  they  raise  the 
rents,  and  the  houses  are  bought  subsequently  by 
the  local  authority  on  the  basis  of  the  enhanced 
income. 

(2)  Various  costly  administrative  expenses  are 
incurred  before  a  brick  is  removed.  So  heavy  in- 
deed may  the  expenses  be  that  in  the  carrying  out 
of  a  municipal-housing  scheme  under  part  1  of  the 
act,  the  London  County  Council  has  before  now 
been  put  to  a  cost  of  $500  per  head  for  every  man, 
woman,  and  child  who  would  inhabit  the  dwell- 
ings before  even  a  single  brick  has  been  laid. 

(3)  The  subterfuge  of  writing  down  the  value 
of  sites  secured  for  housing  purposes  (of  which 
some  examples  have  been  cited)  in  order  that,  on 
the  rents  charged,  the  undertaking  may  be  made 
to  appear  to  *'pay."  Witness  the  report  of  the 
London  Council's  Housing  Committee  which  has 
been  quoted.  Another  instance  of  the  method  is 
a  site  at  Clerkenwell,  bought  by  the  Council  for 
$1,000,000,  the  value  of  which,  for  ''housing  pur- 
poses," was  written  down  to  $225,000.  The  dif- 
ference between  these  figures  ($775,000)  repre- 
sents the  cost,  in  the  case  of  this  particular  site, 
which  has  to  be  borne  by  the  taxpayers.  That 
the  Council  has  to  buy  land  at  its  commercial  value 

342 


MUNICIPAL  HOUSING 

is  the  penalty  it  pays  for  interfering  with  the 
housing  company.  Before  they  came  on  the 
scene  in  1899,  private  enterprise  was  doing  the 
same  work  under  advantages  which  sellers  of  land 
now  deny  them,  and  also  deny  the  Council.  The 
housing  companies  found  that  the  poor  man  in 
London  could  not  be  decently  housed  at  a  rent  he 
could  afford  to  pay  if,  at  the  start,  the  land  were 
bought  at  its  market  value,  for  in  that  case  the 
ground  rent  per  room  per  week  worked  out  at  a 
prohibitive  total  rental.  They  therefore  besought 
the  generosity  of  the  ground  landlords  of  London 
to  let  them  have  land  at  a  price  which  would  en- 
able them  to  charge  their  poor  tenants  a  land  rent 
of  no  more  than  3d.  (6  cents)  per  room  per  week. 
The  ground  landlords  responded,  and  sold  them  a 
great  deal  of  land  on  terms  six  and  twelve  times 
below  its  market  value,  one  of  them  (the  late  Duke 
of  "Westminster)  sacrificing  several  thousands 
of  pounds  sterling  a  year  through  making  such 
generous  concessions  to  the  companies  in  order 
that  their  rentals  could  come  within  a  poor  man's 
means.  But  when  the  companies  wanted  to  buy 
suitable  sites  from  the  County  Council,  no  such 
consideration  was  shown  them;  the  Council  de- 
manded the  full  market  value  of  their  land,  and 
also  imposed  their  various  restrictions.  At  the 
Council's  price,  the  land  rent  of  one  site  per  room 

343 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

per  week,  including  taxes,  worked  out  at  as  much 
as  Is.  6d.  (37  cents),  whilst  by  imposing  that  the 
number  of  stories  should  be  four  instead  of  six, 
as  the  Council  did,  the  company  would  be  obliged 
to  reduce  the  number  of  rooms,  thus  increasing 
the  proportion  of  land  rent  each  tenant  would 
have  to  pay.  The  result  has  been,  as  far  as  the 
companies  are  concerned,  that  not  a  single  site 
has  been  bought  by  them  from  the  Council;  they 
preferred  instead  to  purchase  their  land  from  pri- 
vate owners.  As  for  the  latter,  the  municipal 
policy  has  reacted  substantially  in  their  favor, 
for  when  they  found  that  the  Council  sought  to 
sell  their  land  for  housing  purposes  at  the  full 
market  value,  they  regarded  themselves  as  re- 
leased from  the  obligation  to  sell  on  the  cheaper 
basis ;  but  the  companies  chose  to  buy  land  from 
them  on  the  higher  terms  rather  than  buy  from  the 
Council.  The  consequence  was  that  the  Council 
had  a  great  deal  of  land  on  its  hands  that  no  one 
would  buy  on  the  prohibitive  terms  demanded. 
They  built  on  it  themselves  on  the  pretext  that 
private  enterprise  was  a  failure,  because  no  pur- 
chaser would  come  forward,  and  in  doing  so  they 
promptly  hit  upon  the  expedient  of  writing  down 
the  value,  in  order  to  give  the  housing  undertak- 
ing the  semblance  of  a  payable  proposition,  thus 

344 


MUNICIPAL  HOUSING 

according  to  themselves  all  the  concessions  which 
they  denied  to  the  private  companies,  and  which 
the  latter  were  able  to  obtain  from  the  ground 
landlords  before  the  Council  interfered  with  the 
housing  industry. 

(4)  A  municipality  being  thus  obliged  to  build, 
there  arises  an  anxiety  on  the  part  of  municipal 
officials,  for  their  credit's  sake,  to  make  a  **good 
job"  of  the  houses,  which  tempts  them  to  add  va- 
rious ** extras,"  ornamental  or  otherwise,  that  a 
company  working  on  commercial  lines,  and  re- 
garding every  cent  spent  on  the  cost  of  pro- 
duction to  be  made  up  out  of  the  rents,  would  be 
disposed  to  do  without. 

(5)  The  slower  rate  at  which  municipal  work- 
men perform  their  labor,  combined  with  the  over- 
loaded officialism  that  marks  municipal  works 
departments,  and  consequent  higher  cost  of  admin- 
istration. 

(6)  The  probability  that  even  if  the  building 
were  given  to  a  contractor,  he  would  charge  more 
to  a  municipality  than  to  a  private  person,  because 
his  men,  knowing  the  work  to  be  municipal,  would 
be  just  as  leisurely  as  municipal  employees,  and 
he  would  be  subject  to  many  restrictions  and  in- 
terferences, from  all  of  which  he  would  be  exempt 
were  the  undertaking  a  piivate  one. 

345 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

(7)  The  statutory  obligation  of  a  municipality 
to  pay  off  its  loans  within  a  limited  period,  which 
involves  a  much  heavier  annual  contribution  to 
the  sinking-fund  paid  out  of  receipts  than  private 
companies  find  necessary. 

In  view  of  all  these  disabilities,  it  is  surprising 
that  any  sanely  managed  municipality  should  be 
desirous  of  embarking  on  such  an  hazardous  un- 
dertaking; but  the  bottomless  resources  of  the 
taxes  enable  them  to  slide  smoothly  over  all  these 
obstacles.  The  increased  local  taxation  which 
follows  the  pursuit  of  municipal  housing  so  cir- 
cumscribed is  felt  as  much  by  the  housing  com- 
panies as  any  one  else,  and  joined  to  other  hind- 
rances to  their  development  makes  cheap  housing 
accommodation  more  and  more  of  an  impossibility 
as  time  goes  on.  Indeed,  ' '  such  is  the  position  in 
regard  to  the  cost  of  building  artisans'  dwellings 
at  the  present  time  that,  although  housing  com- 
panies and  trusts  managed  on  business  lines  to  se- 
cure profits  ranging  from  2 1/^  to  4  or  5  per  cent, 
(as  compared  with  the  losses  too  often  sustained 
on  municipal  dwellings),  it  is  morally  certain  that 
if  any  new  company  were  to  start  operations 
within  a  reasonable  distance  of  the  city  of  London, 
it  would  not  be  able  to  earn  more  than  about  21/2 
per  cent.    It  is  doubtful,  moreover,  if  any  such 

346 


MUNICIPAL  HOUSING 

new  company  would  now  be  started  at  all  in  Lon- 
don, for  existing  companies  find  that,  owing  to 
the  policy  adopted  in  regard  to  municipal  dwell- 
ings, there  is  a  growing  reluctance  on  the  part  of 
the  public  to  invest  in  private  housing  companies. 
The  check  given  to  trusts  and  companies  has  nat- 
urally been  even  keener  in  the  case  of  individual 
builders  with  smaller  resources  to  fall  back  on; 
but  when  one  bears  in  mind  what  enormous  col- 
lections of  small-house  property  have  sprung  into 
existence  of  late  years  in  the  neighborhood  of 
Edmonton,  Walthamstow,  and  other  districts, 
converting  hamlets  into  populous  towns,  there  is 
still  further  reason  for  suggesting  that  private 
enterprise  has  done  much  more  than  the  advo- 
cates of  municipal  house-building  are  willing  to 
give  it  credit  for."*  In  fact,  notwithstanding 
the  unfavorable  conditions  created  by  the  munici- 
palities, between  1883  and  up  to  March,  1905,  pri- 
vate builders  in  London  succeeded  in  providing, 
exclusive  of  small  houses,  working-class  dwellings 
with  an  aggregate  number  of  113,147  rooms,  at 
an  average  weekly  rental  of  2s.  4d.  (58  cents) 
per  room.  On  the  other  hand,  the  whole  of  the 
London  municipalities  have  only  provided  hous- 
ing in  the  same  period  to  the  number  of  21,065 

1 "  Municipal  Socialism." 

347 


THE  DANGEES  OF  MUNICIPAL  OWNERSHIP 

rooms;  whilst  the  average  weekly  rent  per  room 
charged  by  the  London  County  Council  is  2s.  lid. 
(73  cents). 

In  conclusion,  the  social  and  economic  condi- 
tions which  do  not  favor  the  intrusion  of  the 
State  or  municipality  into  the  industrial  field  are 
particularly  manifest  in  the  case  of  housing.  The 
more  houses  a  State  builds,  the  more  houses  will 
other  people  be  prevented  from  building.  That 
means  stagnation  of  voluntary  enterprise,  which 
can  be  beneficial  to  no  nation.  Then  the  influ- 
ences behind  State  action  differ  widely  from  those 
which  move  private  persons  (namely,  monetary 
profit  and  personal  well-being)  to  initiate  and  de- 
velop housing  undertakings.  Competition  keeps 
the  latter  up  to  the  mark;  but  the  vigor  of  State 
enterprise  wholly  depends  upon  the  pressure  with 
which  the  general  public  and  the  taxpayers  actu- 
ate the  government  machinery.  Such  pressure 
is  strong  only  intermittently.  Usually  impulsive, 
it  is  merely  expressive  of  a  temporary  frame  of 
mind,  and  is  generally  followed  by  long  periods  of 
apathy,  which  encourages  State  and  municipal 
officials  to  a  lax  and  sluggish  performance  of  their 
duties.  Not  having  the  same  spur  to  action  which 
urges  voluntary  enterprise  to  do  its  best,  an  in- 
crease of  knowledge  and  of  skill  on  the  part  of 

348 


MUNICIPAL  HOUSING 

governmental  officials  is  not  to  be  expected.  With 
the  best  will  in  the  world,  any  zeal  which  they  may 
accidentally  show  is  likely  to  be  choked  by  the 
usual  rigid  system  of  red  tape,  regulations,  and 
precedents.  Incentives  to  enterprise  in  govern- 
ment departments,  therefore,  do  not  exist,  and  it 
is  idle  to  argue  that  efficiency  of  management  is 
possible  under  such  conditions. 


349 


INDEX 


INDEX 


Accounting,  Municipal,  208,  216- 
218,  226,  227,  326,  328 

Advantages  of  ownership  ques- 
tioned, 50 

Alderman,  the  British,  130 

Alverstone,  Lord,  and  municipal  in- 
fluence in  Parliament,   132 

American  experts  and  British  street 
railways,  244 

Assessments,  British,  146-147,  154— 
156;   inflation  of,  184,   190 

Australia — 

Aims  of  Socialist  Party,  69-72 
Anti-Socialistic  Party,  73 
Backward  condition  of,  89 
Domination  of  Labor  Party,  90 
Failure   to   blend   democracy   and 

bureaucracy,  89 
New  South  Wales,   80-87 
Pensions  in,   74-75,   117 
Political  standards,  68,  88 
Public  works  in,  44,  68,  69 
Reeves,  W.  Pember,  81,  82 
Reid,  G.  H.,  73,  88 
State   and   municipal   aggrandize- 
ment, 67,  68 
State  debts  compared  with  debts 

of  American  states,  78-79 
State  servants,  68 
"Surpluses"  in  state  accounts,  76, 

84-85 
"Sydney  Bulletin,"  84,  85,  86,  87 
Unemploved,  aiding  the,  81 
Western  Australia,  87,  88 
Workingman,  the  Australian,   73— 
75 

Australian  debt,  77;  prosperity,  75- 
76 

Bacon,  Sir  Francis,  96 

Balfour,  Gerald,   114 

Balfour,  Mr.,  and  Municipal  Trad- 
ing, 100-102 

Banking,  municipal,  200 ;  dangers 
of,  204 

Bath  electric-lighting  undertaking, 
275 

Beaulieu,  Leroy,   156 

BetheU,  U.  X.,  305,  308,  309 

Bills,  municipal,    198-200 

Birmingham  and  money  raising, 
198,  203;  Chamber  of  Commerce, 
143-146  ;  purchase  of  gas  works,  8 

Booth,  Charles,  192 

Borrowing  powers,  British  munici- 
pal,  154 

British  municipal  projects,  57 


British  town  clerk,  the,  48,  49 
Bryan,  Mr.,  and  government  owner- 
ship of  railways,  43 
Bury    municipality    and    small    de- 
posits, 203 

Chamberlain,  Arthur,   213 

Chaplin,  Henry,  255 

Cheap  electric  power,  need  for, 
278-279 

Chicago  and  street  railway  owner- 
ship, 20,  21,  22 

Civilization  defined,  53 

Cobbett,  William,   191-192 

Collins,    Edward,   321 

"Common-Sense  of  Municipal  Trad- 
ing, The,"  173,  210,  251,  328- 
329 

Constitutional  laws  of  states,  danger 
of  amending,   30 

Credit,  municipal,  190-191 

Crippling  policy  of  municipalities, 
36,  37,  38,  39,  241,  242,  253, 
254,  255,  271-272,  280-281, 
343-344 

Darwin,  Major  Leonard,   186 

Davies,  Dixon  H.,  11,  27,  38,  111, 
150,  160 

Debt,  British  local,  136,  138,  147, 
148;  of  London,  159,  161-162; 
reproductive  (United  Kingdom), 
136,  138;  reproductive  (United 
States),  136,  138;  United  States 
municipal,   136,   138 

Debts,  in  United  States,  accumula- 
tion of,  7 ;  of  principal  British 
cities,  142 ;  of  principal  American 
cities,  141 

Depreciation  and  sinking  funds, 
226,  228 

Depreciation  funds  inadequate,   229 

Destructive  effect  of  adopting  Rus- 
sian policy,  57,  58 

Detroit  street  railways,   29,   30 

Disfranchised  private  companies, 
151 

Dublin  street  tramways,  214 

"Eastern  Morning  News,"  299 
Edinburgh  municipal  banking,  201 
Electric  Tight  v.  gas,  264-266 ;  light- 
ing acts,  8,  262,  268;  power  in 
bulk,  270;  power  schemes,  mu- 
nicipal, attitude  to,  261,  263, 
267-268 


353 


INDEX 


"Electrical  Review,"  297,  299 
Electricity   franchises,    269;    limited 

use  of  municipal,  265;   works  in 

Great  Britain,  41,  225;  works  in 

United  States,  42 
Enterprises    damaged   by   municipal 

policy,  36,  37 
Equitable    taxation    for    ownership 

privileges,  48 
Expenditure,  British  local,  143-145, 

147,  149 
Expropriation  of  utilities,   36,   240, 

242 

Fabian  Society,  9 

"Fabianism   and   the    Empire,"    58, 

59 
Fulham  electricity,  266 

GarckS,  E.,  243,  253,  273 

Gas  Lighting  Association,  President 
of,  51 

Gas  V.  electric  light,  264-266 

Gas-works  in  Great  Britain,  41;  in 
United  States,  41 

Giffen,  Sir  Robert,  125 

Glasgow  an  over-municipalized  city, 
108;  tramways,  222-224 

Government,  primary  duty  of,  49 

Gray,  Albert,  254 

Great  Britain,  municipal  govern- 
ment in,  1880,  4-5 

Hearst,  W.  R.,  24 
Hill,  Miss  Octavia,  340 
Hodgson,  William,  278 

Independent    Labor    Party's   policy, 

110 
Individual    man    and    the    world's 

progress,  53,  54 
Industrial  Freedom  League,  14 
"Inefficiency"  of  private  enterprise, 

37,  243,  253 
Interurban  street  railways  in  Great 

Britain,  244,  248-251 

King's  Lynn  municipal  banking, 
202 

Lawrence,  the  Hon.  Oharles  N.,  97, 
98 

Loans  and  deposits  received  by 
municipalities,  200 

London — 

Administrative  County  of  London 

Electric  Power  Co.,  279,  282 
Battersea,  127,  181-184,  265 
Borough  councils,   174—178,  187 
Chamber  of  Commerce,   11 
Cost  of  housing  sites,  321,  323 
Debt  of,  159,  161-162 
Electric  power  requirements,  283 
Exodus  from,  186,   192 
Ground  landlords,  343-344 
House  building  in,  319,  347 
Lighting,    company    and    munici- 
pal,  179-180 


Marylebone  electric  supply,  32 
Municipal  Society,   14 
Municipal  Trading  in,  159 
North  Metropolitan  Tramway  Co., 

167-168 
Parliament     and     electric     power 

schemes,  279,  282 
Poor,  192 

Poplar's  taxation,  184-185 
St.    Neot    electric   power   scheme, 

282 
Taxation      relief      from      private 

tramway  operation,  220-222 
Traffic   Commission,    15,   322-325 
United   Tramway   Company,   216, 

224 
Workmen's     dwellings     in,     318— 

319,  347 
"London  Argus,"  190 
London  County  Council — 
Clerical  expenses,  218 
Electricity   supply,    170,    279-286 
Expenditure,    193-194 
Extravagant  policy  of,  11 
Housing,   320,   322,   325-330 
Land  purchase  by,  35 
Ownership      commitments,       162, 

286 
Pensions,   117 
Steamboats,  163-164 
Stocks,    193,    195-197 
Street  widenings,  216-217 
Tramways,      164-169,      219-221, 

252 
Works  Department,    170-172 
"London     Times,"     10,     112,     113, 
116,  146,  188,  270.  333,  340,  347 
Long,  R.  E.  C,  60,  109 
Losses    on    municipal    water,     gas, 
street     railways     and     electricity 
works,   232-235 

Marr,  T.  R.,  331 

Marriott,  J.  A.  R.,  213 

Martin,  Rudolf,  61,  62 

Massachusetts  state  committee,  19, 
20 

Massachusetts  Supreme  Court  judg- 
ments, 28 

Mill,  John  Stuart,  95,  96,  98,  99 

Modern  Municipalism,   inherent 
weakness  of,   134 

Motor-omnibus,  the,  257 

Municipal  activities,  proper  sphere 
of,  46,  47;  ambitions,  133;  bills, 
197-200;  Corporations  Associa- 
tion, 15,  129,  131,  132;  council- 
ors and  officials,  119-127,  130, 
276;  egotism,  106;  employes,  103, 
104,  109-112,  116;  enterprise,  7; 
jealousies,  175-177,  248-249;  lax 
control,  38,  39;  monopoly,  210. 
213,  262;  relief  works,  113-115; 
stocks  and  investors,  193—197 

Municipal  housing,  competition 
with  private  builders,  338,  346; 
dishousing  the  poor,  331,  337- 
338;  in  Birmingham,  333-334; 
Glasgow,  332;  Leeds,  336;  Liver- 


354 


INDEX 


pool,  334-336;  London,  319- 
330,  347;  Manchester,  331;  ob- 
jections to,  340-341,  348-349; 
political  objects  of,  338-340; 
superior  class  catered  for,   338 

Municipal  Trading,  Parliament  and, 
12,  13 ;  public  discussions  of,  13, 
14;  suppressed  facts  concerning, 
123 

Municipal  Works  Departments,  339- 
340;  impermanence  of,  103,  230 

Municipalities  and  people's  savings, 
200;  anomalous  powers  of,  258; 
difficulties  of  companies  with,  33, 
37,  241-242,  251,  254-255,  257- 
259,  262,  267,  280-281,  343- 
344 ;  parliamentary  protection  of, 
8,  133,  268;  unlimited  liability 
of,   48 

Murphy,  W.  M.,  38 

National  Civic  Federation,  23 
New    York    electric    power    supply, 
283 ;    g^ivernorship    election,    24 ; 
state     committee,     18,     19 ;     tele- 
phones,  306,  313,  314,  315 
New  Zealand  debt,  77-78 
Newcastle    on    Tyne    Electric    Light 

Company,   273-274 
Non-taxpayers   in   London,    116 
North        Metropolitan         (London) 
Tramway  Company,   165-167 

Ownership  baits  to  trade-unions, 
47;  beginnings  in  Great  Britain, 
8,  106;  effect  of  extending,  39- 
44;  in  United  States,  8,  17;  liter- 
ature, 11 ;  misleading  reports  on, 
23;  opposition  to,  11,  12;  privi- 
leges of  non-taxpayers,  108 ;  real 
effect  of,  22 ;  schemes,  forces  be- 
hind, 49 ;  strength  of  case 
against,  50;  supposed  advantages 
of,  45 

Parliament  and  ownership,   16 

Parliamentary  protection  of  munici- 
palities,  133,  268 

Parsons,  James,  319 

Paternal  government,   93 

People's  savings,  encroachment  on, 
203 

Poplar  Board  of  Guardians,  126 

Popularity  of  ownership  explained, 
107 

Private  banks  depleted  by  munici- 
palities, 198,  201;  electric  power, 
cheapness  of,  274,  277 

Private  enterprise  and  electric 
power,  270-275;  effect  of  public 
control  on,  31 

Private  firms,  cohesive  policy  of, 
124 

Private  traders,  duty  of,  51,  52; 
injustice  to,   150,  151,  152 

Profits  dpfinpfl.  212;  devising,  208; 
municipal,  229 

Public    Authorities    Protection    Act, 


256;  as  open  buyers  of  enter- 
prises, 34 
Public  trading  declared  unconstitu- 
tional, 27;  Massachusetts  state 
law  affecting,  27;  summary  of 
arguments  against,  26,  27 

Reproductive  municipal  undertak- 
ings, British,  227 

"Repudiation,"  resort  to,  7 

Restraint  on  American  cities,  25 

Revenue,  British  local,  146,  147 

RoUit,  Sir  Albert,   106 

Russia  and  foreign  loans,  60 ;  own- 
ership in,  44,  55,  56,  118;  shack- 
ling of  personal  initiative  in,  66 ; 
the  municipal  trader's  paradise, 
59 

Russian  agriculture,  62;  bureau- 
cracy, 56,  61;  empire,  99;  peas- 
ant, the,  63 

Russia's  bankruptcy  predicted,  62 ; 
debt,  64,  65;  disbelief  in  prole- 
tariat, 104 

Schooling,  J.  Holt,  147,  228,  229, 
230 

Selling  unsuccessful  municipal 
plants,  275-276 

Shaw,  Dr.  Alfred,  17,  18 

Shaw,  G.  Bernard,  35,  58,  94,  172; 
195,  210,  251,  327-329 

Sims,  G.  R.,   195 

Socialism,  influence  of,  on  muni- 
cipal policy,  9,  10 

Spencer,  Herbert,  93,  94 

State's  function,  the,  92 

"Statist,"  the,  203 

Street  railway  expropriation,  36, 
240,  242;  legislation  in  Great 
Britain,   237 

Street  railways  in  Great  Britain, 
40;  in  United  States,  40;  inter- 
urban,  244,  245 

Street  railways,  municipal,  248  J 
and  private  competition,  246- 
247;  beginnings  of,  239,  241, 
242;  objections  to,  177,  248,  252 

Street  widenings  and  tramway  ex- 
tensions, 215,  216 

Subways,  New  York  and  Boston, 
15,  16,  214 

"Superior  public  service"  by  muni- 
cipalities, 38,  39,  277 

Swinton,  Captain,  217 

Taxation,  British  local,  145,  147, 
148 ;  ownership  and  increase  of, 
145,  147,  155,  156;  railway. 
152 ;  without  representation,    149 

Taxpayers  outvoted,  107,  150;  pro- 
test of,   154 ;  strain  on  poor,   153 

Telegraphs,  British  state,  33,  34, 
301-303;  deficits  of,  303 

Telephones  in  Belgium,  306;  Copen- 
hagen, 309,  311;  Europe,  305; 
Prance,  305-306;  Greece,  309- 
310;  Holland,  307-308,  309; 
Sweden,   311;    Switierland,   807 


355 


INDEX 


Telephones  in  United  Kingdom — 

Backward   condition  of,    287-288 

Company  royalties  paid  to  state, 
303 

Declared  a  government  mo- 
nopoly, 289 

Government  purchase  of,  291, 
300-301 

London,  313,  315 

Municipal,  290-300;  John  Burns 
and,  292;  Brighton,  297-298; 
Glasgow,  295-297;  Hull,  298; 
Portsmouth,  299;  Swansea, 
299;  Tunbridge  Wells,  291, 
293-294 

National  Telephone  Co.,  289-290 

Number  of,  313 

Post  office,  303-304 

Stifling  of  enterprise,  288 

Value  of,   42 
Telephones    in    United    States,    42, 

306,    308,    311-314;    public    and 

private  operation  of,   312 


Thatcher,  John  Boyd,  91,  92 
Thompson,    Prof.    Sylvanus,   280 
"Traction   and  Transmission,"    13 
Tramway  Act  of   1870,   9,   237-238 

Unemployed,      municipalities      and, 

113-115 
Unemployed  Workman  Bill,  Debate 

on,  114 
Utilities    municipalized    in    Russia, 

60 

"Veto,  the  municipal,   177,  248,  252, 

254-256 
Voluntary     enterprise     in     housing, 

317-320,   347 

Water  companies,   purchase  of  Lon- 
don,  160-161 
Waterworks  capital,  137,   140 
Webb,  Herbert  Laws,  292,  315 


356 


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DATE  DUE 

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A  A      000  030  344    6 


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